Seminario 18/20: Ana B. Ania-Martínez (U. of Vienna) – Laboratory federalism with public funds sharing

Información

Abstract: We explore the role of public funds sharing in the  framework of laboratory federalism, viewed as a learning process of policy innovation and imitation. In a model of decentralized, rich-to-poor redistribution with labor mobility, such a learning dynamics leads to the complete erosion of the welfare state. We show that suitably designed funds sharing schemes can correct this failure and even have the potential to restore efficiency. Surprisingly, the properties of the sharing scheme that are necessary to support efficiency in our learning model are the same as those required for decentralized strategic (Nash) play to be efficient. Public funds sharing can thus be a powerful corrective device with decentralized fiscal interaction for a variety of behavioral modes of government interaction.