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Spatial Externalities, Optimal Intergovernmental Transfers and Endogenous Economic Growth
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TitleSpatial Externalities, Optimal Intergovernmental Transfers and Endogenous Economic Growth  
AuthorJin Ge and Lin Yanfang  
OrganizationZhejiang University Of Finance & Economics;FUDAN University; 
Key WordsOptimal Intergovernmental Transfers; Spatial externalities; Three-Stage Game 
AbstractIn this paper we develop an economic growth model with a three-stage Stackelberg game among a central government, two local governments and two representative agents. Considering the pervasive interregional spatial externalities of local public services in reality, we particularly focus on the optimal transfers of the central government and the optimal expenditures of the local governments. Specially, in a decentralized economy with income taxes, we show the consistency of the welfare-maximization and the growth-maximization, and find that the optimal transfer from the central government to a local government is positively correlated with the output elasticity of the local public services to its neighboring region while negatively with that to the region itself. Finally we investigate the first-best allocation and explore its implementation in the decentralized economy. 
Serial NumberWP1180 
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