| Abstract: |
This paper covers literature on efficiency of public good provision in case of fiscal decentralization. It describes characteristics that differentiate decentralized provision from the centralized. The first part is devoted to efficiency itself and includes the efficiency conditions for the pure public goods (the Samuelson condition), for club goods and local public goods. Then, the famous Tiebout hypothesis is presented. Finally, efficiency conditions for jurisdictions with ex-ante given boundaries are described. The second part studies the local governments' behaviour when they can finance local public good provision by tax on mobile factors of production (particularly capital). Two types of behaviour: perfect competition and strategic behaviour are described and resulting underprovision of public good is demonstrated. The last chapter presents three examples of corrective measures: user fees, mobility of households and matching grants. |
