A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects

Tong Yang

doi:doi:10.11648/j.hss.20200804.13

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A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects

Tong Yang

Published in Humanities and Social Sciences (Volume 8, Issue 4)

Received: 22 July 2020 Accepted: 31 July 2020 Published: 17 August 2020

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Abstract

The matching grant (the Pigovian tax) program from a central government to the jurisdictional governments is a strong instrument to solve the problem of an insufficiently provision of local public goods. The under-provision (over-provision) of public goods arises from different kinds of externalities, such as the benefit spillovers and the tax-exporting effect. This study introduces the spillover effect of public goods and the heterogeneity of jurisdictions to the capital tax competition literature using a two-period economy. It is assumed that the central government and the jurisdictional governments play a Stackelberg game with centralised leadership and that there is a unique Stackelberg equilibrium in each period. Meanwhile, the central government and the jurisdictional governments are assumed to be hyperopic and benevolent. A clear result is that the revision of a corrective device used by the central government in the first period to ensure an optimal level of a local public good which is provided by a hyperopic jurisdictional government, significantly depends on the relative size of the income and spill-in effects in the second period. When the income effect is larger than the spill-in effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be increased (decreased). Conversely, when the spill-in effect is larger than the income effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be decreased (increased). The relative size of the two effects, which work in opposite directions, is determined by the tastes and endowments of the jurisdictions, the form of their production functions and the degree of spillovers, among other factors. This result is quite different from the literature.

Published in	Humanities and Social Sciences (Volume 8, Issue 4)
DOI	10.11648/j.hss.20200804.13
Page(s)	117-123
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Corrective Device, Spillover, Tax Competition, Heterogeneity

References

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Tong Yang. (2020). A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects. Humanities and Social Sciences, 8(4), 117-123. https://doi.org/10.11648/j.hss.20200804.13

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Tong Yang. A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects. Humanit. Soc. Sci. 2020, 8(4), 117-123. doi: 10.11648/j.hss.20200804.13

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AMA Style

Tong Yang. A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects. Humanit Soc Sci. 2020;8(4):117-123. doi: 10.11648/j.hss.20200804.13

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@article{10.11648/j.hss.20200804.13,
  author = {Tong Yang},
  title = {A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects},
  journal = {Humanities and Social Sciences},
  volume = {8},
  number = {4},
  pages = {117-123},
  doi = {10.11648/j.hss.20200804.13},
  url = {https://doi.org/10.11648/j.hss.20200804.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.hss.20200804.13},
  abstract = {The matching grant (the Pigovian tax) program from a central government to the jurisdictional governments is a strong instrument to solve the problem of an insufficiently provision of local public goods. The under-provision (over-provision) of public goods arises from different kinds of externalities, such as the benefit spillovers and the tax-exporting effect. This study introduces the spillover effect of public goods and the heterogeneity of jurisdictions to the capital tax competition literature using a two-period economy. It is assumed that the central government and the jurisdictional governments play a Stackelberg game with centralised leadership and that there is a unique Stackelberg equilibrium in each period. Meanwhile, the central government and the jurisdictional governments are assumed to be hyperopic and benevolent. A clear result is that the revision of a corrective device used by the central government in the first period to ensure an optimal level of a local public good which is provided by a hyperopic jurisdictional government, significantly depends on the relative size of the income and spill-in effects in the second period. When the income effect is larger than the spill-in effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be increased (decreased). Conversely, when the spill-in effect is larger than the income effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be decreased (increased). The relative size of the two effects, which work in opposite directions, is determined by the tastes and endowments of the jurisdictions, the form of their production functions and the degree of spillovers, among other factors. This result is quite different from the literature.},
 year = {2020}
}

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TY  - JOUR
T1  - A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects
AU  - Tong Yang
Y1  - 2020/08/17
PY  - 2020
N1  - https://doi.org/10.11648/j.hss.20200804.13
DO  - 10.11648/j.hss.20200804.13
T2  - Humanities and Social Sciences
JF  - Humanities and Social Sciences
JO  - Humanities and Social Sciences
SP  - 117
EP  - 123
PB  - Science Publishing Group
SN  - 2330-8184
UR  - https://doi.org/10.11648/j.hss.20200804.13
AB  - The matching grant (the Pigovian tax) program from a central government to the jurisdictional governments is a strong instrument to solve the problem of an insufficiently provision of local public goods. The under-provision (over-provision) of public goods arises from different kinds of externalities, such as the benefit spillovers and the tax-exporting effect. This study introduces the spillover effect of public goods and the heterogeneity of jurisdictions to the capital tax competition literature using a two-period economy. It is assumed that the central government and the jurisdictional governments play a Stackelberg game with centralised leadership and that there is a unique Stackelberg equilibrium in each period. Meanwhile, the central government and the jurisdictional governments are assumed to be hyperopic and benevolent. A clear result is that the revision of a corrective device used by the central government in the first period to ensure an optimal level of a local public good which is provided by a hyperopic jurisdictional government, significantly depends on the relative size of the income and spill-in effects in the second period. When the income effect is larger than the spill-in effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be increased (decreased). Conversely, when the spill-in effect is larger than the income effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be decreased (increased). The relative size of the two effects, which work in opposite directions, is determined by the tastes and endowments of the jurisdictions, the form of their production functions and the degree of spillovers, among other factors. This result is quite different from the literature.
VL  - 8
IS  - 4
ER  -

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Author Information

Tong Yang

Graduate School of Social Sciences, Hiroshima University, Higashi-Hiroshima, Japan

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Tong Yang. (2020). A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects. Humanities and Social Sciences, 8(4), 117-123. https://doi.org/10.11648/j.hss.20200804.13

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ACS Style

Tong Yang. A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects. Humanit. Soc. Sci. 2020, 8(4), 117-123. doi: 10.11648/j.hss.20200804.13

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AMA Style

Tong Yang. A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects. Humanit Soc Sci. 2020;8(4):117-123. doi: 10.11648/j.hss.20200804.13

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@article{10.11648/j.hss.20200804.13,
  author = {Tong Yang},
  title = {A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects},
  journal = {Humanities and Social Sciences},
  volume = {8},
  number = {4},
  pages = {117-123},
  doi = {10.11648/j.hss.20200804.13},
  url = {https://doi.org/10.11648/j.hss.20200804.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.hss.20200804.13},
  abstract = {The matching grant (the Pigovian tax) program from a central government to the jurisdictional governments is a strong instrument to solve the problem of an insufficiently provision of local public goods. The under-provision (over-provision) of public goods arises from different kinds of externalities, such as the benefit spillovers and the tax-exporting effect. This study introduces the spillover effect of public goods and the heterogeneity of jurisdictions to the capital tax competition literature using a two-period economy. It is assumed that the central government and the jurisdictional governments play a Stackelberg game with centralised leadership and that there is a unique Stackelberg equilibrium in each period. Meanwhile, the central government and the jurisdictional governments are assumed to be hyperopic and benevolent. A clear result is that the revision of a corrective device used by the central government in the first period to ensure an optimal level of a local public good which is provided by a hyperopic jurisdictional government, significantly depends on the relative size of the income and spill-in effects in the second period. When the income effect is larger than the spill-in effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be increased (decreased). Conversely, when the spill-in effect is larger than the income effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be decreased (increased). The relative size of the two effects, which work in opposite directions, is determined by the tastes and endowments of the jurisdictions, the form of their production functions and the degree of spillovers, among other factors. This result is quite different from the literature.},
 year = {2020}
}

Copy | Download

TY  - JOUR
T1  - A Corrective Device for Large Heterogeneous Jurisdictions in a Two-Period Economy with Spillover Effects
AU  - Tong Yang
Y1  - 2020/08/17
PY  - 2020
N1  - https://doi.org/10.11648/j.hss.20200804.13
DO  - 10.11648/j.hss.20200804.13
T2  - Humanities and Social Sciences
JF  - Humanities and Social Sciences
JO  - Humanities and Social Sciences
SP  - 117
EP  - 123
PB  - Science Publishing Group
SN  - 2330-8184
UR  - https://doi.org/10.11648/j.hss.20200804.13
AB  - The matching grant (the Pigovian tax) program from a central government to the jurisdictional governments is a strong instrument to solve the problem of an insufficiently provision of local public goods. The under-provision (over-provision) of public goods arises from different kinds of externalities, such as the benefit spillovers and the tax-exporting effect. This study introduces the spillover effect of public goods and the heterogeneity of jurisdictions to the capital tax competition literature using a two-period economy. It is assumed that the central government and the jurisdictional governments play a Stackelberg game with centralised leadership and that there is a unique Stackelberg equilibrium in each period. Meanwhile, the central government and the jurisdictional governments are assumed to be hyperopic and benevolent. A clear result is that the revision of a corrective device used by the central government in the first period to ensure an optimal level of a local public good which is provided by a hyperopic jurisdictional government, significantly depends on the relative size of the income and spill-in effects in the second period. When the income effect is larger than the spill-in effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be increased (decreased). Conversely, when the spill-in effect is larger than the income effect in the second period, the optimal matching grant rate (the Pigovian tax rate) in the first period from the central government to a more hyperopic jurisdictional government should be decreased (increased). The relative size of the two effects, which work in opposite directions, is determined by the tastes and endowments of the jurisdictions, the form of their production functions and the degree of spillovers, among other factors. This result is quite different from the literature.
VL  - 8
IS  - 4
ER  -

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