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Fiscal Federalism and Capital Accumulation
Author(s) -
Brueckner Jan K.
Publication year - 1999
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/1097-3923.00009
Subject(s) - economics , overlapping generations model , consumption (sociology) , federalism , unitary state , fiscal federalism , capital (architecture) , capital accumulation , monetary economics , private capital , private consumption , macroeconomics , market economy , economic system , fiscal policy , human capital , production (economics) , decentralization , history , archaeology , politics , political science , law , social science , sociology
This paper explores the effect of fiscal federalism on capital accumulation and growth in an overlapping‐generations model. By relaxing the uniform‐consumption requirement of a unitary system, fiscal federalism allows the economy to respond to a difference in public‐good demands between young and old. Public‐good levels and taxes move in opposite directions for the young and old as their different demands are fulfilled, and this leads to opposing changes in private‐good consumption for the two groups. These changes disrupt the preferred time path of private consumption, which is restored by a change in saving. This change in turn alters the equilibrium capital intensity of the economy, and growth effects emerge during the transition to the new equilibrium.