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A Theory of Fiscal Decentralization with Information Asymmetry
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TitleA Theory of Fiscal Decentralization with Information Asymmetry  
AuthorZhao Xiaojun,Wang Can,Liu Weigang and Cui Xiaoyong  
OrganizationPeking University; Chinese Academy of Social Sciences,CASS;;; 
Key WordsAsymmetric information; fiscal decentralization; Optimal fiscal policy 
Abstract In this paper, we incorporate fiscal decentralization into the new dynamic public finance theory, extending the framework of Golosov et al. (2003) to two levels of government, in which the central and local governments optimal fiscal policies are studied under a dynamic economy. This paper considers two levels of information hiding, one is private information of agent and the other is private preference of local government public expenditure. The study concluded that, the optimal transfer from central government positive, the labor and capital are positive when the local government does not own production capacity, and the capital tax is zero when the local government owns the production capacity. Finally, numerical simulation verifies the conclusions, and demonstrates the relationship between the individual labor capacity and optimal economic fiscal policies. 
Serial NumberWP1337 
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