Modelling tax decentralisation and regional growth

Abstract

The aim of this paper is to determine a theoretical linkage between tax decentralisation and regional growth. For this purpose a two fiscal tiers growth model is specified. First, working on Zou (1996) analytical framework, which account for the potential effects of intergovernmental policies on regional growth, a tax decentralisation process is brought in. Next its original model is expanded taking into account such process. It is shown that the effect of tax decentralisation on regional growth depends on the existing relationship between private and regional public capital productivities ratio and their stocks ratio square root. Finally a hypothesis for the Spanish economy is obtained. It will be checked empirically in subsequent work. Keywords: tax decentralisation; general equilibrium analysis; regional growth JEL classification: H70; O40; R13