In fiscal federal systems, local public works that generate spillovers are often financed by transfers from higher levels of government. In this article, we consider a governmental hierarchy composed by a Federal and a Local Government. The former delegates to the latter the task of finding a...

This paper formalises a three-tier administrative hierarchy. A benevolent federal government must decide how to fund an indivisible local public work, planned to be undertaken by a single firm. But the federal government observes neither the cost nor the local benefit of the project. To obtain...

A hierarchical model of collusion in local public works is presented. A local authority plans to undertake a project, delegating its construction to a construction firm. Both of them know the project's cost. However, the federal government decides whether to subsidize the project without knowing...

This article analyses hard and soft budget constraints in a federation, where there is a moral hazard problem between the central and the regional governments. Regional governments can avoid a bailout from the center by exerting costly effort. In this setting, a hard budget constraint is not...

We analyze a Principal-Agent model of an insurer who faces an adverse selection problem. He is unable to observe if his client has a high risk or a low risk of having an accident. At the underwriting of the contract, the insurer requests the client to declare his risk. After that, the former can...

This paper analyses, in a simple two-region model, the undertaking of noxious facilities when the central government has limited prerogatives. The central government decides whether to construct a noxious facility in one of the regions, and how to …nance it. We study this problem under both...

Since Sandmo (1981), many articles have analyzed optimal fiscal policies in economies with tax evasion. All share a feature: they assume that the cost of enforcing the tax law is exogenous. However, governments often invest resources to reduce these enforcement costs. In a very simple model, we...

A country consists of two non-overlapping regions, each ruled by a local authority. The federal government plans to construct a facility in one of the regions. If the facility is constructed, it generates a social value in the host region and has spillover effects in the rest of the country. The...

The objective of this paper is to understand the determinants of the enforcement level of indirect taxation in a positive setting. We build a sequential game where individuals differing in their willingness to pay for a taxed good vote over the enforcement level. Firms then compete à la Cournot...

In ¯fiscal federal systems, local public works that generate spillovers are often ¯nanced by transfers from higher levels of government. In this article, we consider a governmental hierarchy composed by a Federal and a Local Government. The former delegates to the latter the task of ¯nding a...