Optimal Federalism
The Sorting of People within the Fiscal Hierarchy
Abstract
Tiebout had conjectured that federalism would improve efficiency by generating a better match between peoples' tastes and the public services offered by local governments. Subsequent research indicated that Tiebout was overly optimistic. Chapter 27 offers one model by McGuire in which the efficient outcome envisioned by Tiebout obtains. It then presents a number of other models that show how a mobile population can generate almost any outcome: inefficient equilibria, multiple equilibria, and unstable equilibria. The chapter concludes with another set of models that indicate how attempts to redistribute are influenced by mobility.
Keywords
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