Interregional redistribution and budget institutions with private information on intergenerational externality Academic Article uri icon

abstract

  • © 2019, Springer-Verlag GmbH Germany, part of Springer Nature. We study a federal government’s optimal redistributive policy across regions in the context of a model in which regions issue debt, invest in intergenerational public goods (IPGs), and have private information regarding the durability of their IPG investment. First, in both the complete-information and the asymmetric-information optimum, the region with a higher degree of intergenerational spillovers (H-region) should borrow more than the region with a lower degree (L-region). Second, to induce truth-telling under asymmetric information, the region not distorted on intertemporal allocation should be the contributor of redistribution. Third, the asymmetric-information optimum is implementable through decentralized regional debt decisions by imposing differentiated budget institutions: if H-region is distorted on intertemporal allocation, then it faces a debt floor; if L-region is distorted, then it faces a debt ceiling.

author list (cited authors)

  • Dai, D., Liu, L., & Tian, G.

citation count

  • 2

publication date

  • December 2019