Redistribution and Local Public Finance

Abstract

This essay reviews theoretical arguments concerning the issue of decentralized redistribution. We make a representative examination of what are regarded as the merits and demerits of fiscal decentralization from a redistributive perspective, emphasizing the concepts of social solidarity. We proceed to take a closer look at the decentralization theorem, and argue that the celebrated theorem is not an appropriate framework for the issue of redistribution. We then review other merits as well, and argue that those merits largely concern the cost-efficiency of public service delivery and could be in principle exploited without compromising the principle of horizontal equity, through two forms of administrative decentralization, delegation and de-concentration. However, the local incentive problem still remains. The design of transfers and personnel control mechanism will be a crucial factor to attain the cost-efficiency of local administration.