Efficient earmarking under decentralized fiscal commitments

Earmarked federal grants are ubiquitous and significant. Traditional fiscal federalism is unable to explain these grants’ widespread utilization. Recent arguments focusing on the potential benefits of centralized earmarking in reducing incentives for the creation of soft budgets at subcentral govern...

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Bibliographic Details
Published in:International tax and public finance Vol. 22; no. 4; pp. 683 - 701
Main Author: Silva, Emilson Caputo Delfino
Format: Journal Article
Language:English
Published: New York Springer US 01.08.2015
Springer Nature B.V
Subjects:
Budgets
Business Taxation/Tax Law
Centralization
Consumption
Decentralization
Economics
Economics and Finance
Expenditures
Federalism
Fiscal federalism
Fiscal policy
Government grants
Government spending
Income redistribution
Public Finance
Public good
Public goods
Regional government
Regions
Studies
Soft budgets
D62
Decentralized fiscal commitments
R5
H41
H77
Earmarked grants
Selective decentralized leadership
C72
ISSN:0927-5940, 1573-6970
Online Access:Get full text
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Summary:Earmarked federal grants are ubiquitous and significant. Traditional fiscal federalism is unable to explain these grants’ widespread utilization. Recent arguments focusing on the potential benefits of centralized earmarking in reducing incentives for the creation of soft budgets at subcentral government levels merit formalization. I show that universal earmarking improves the efficiency of a federation in which regional governments are able to commit to provision of all regional public goods. However, efficient earmarking need not be universal: It should only involve private consumption and fiscal budgets for public goods subject to decentralized fiscal commitments.
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ISSN:0927-5940
1573-6970
DOI:10.1007/s10797-015-9365-0