Abstract
This paper considers the problem of bargaining between benevolent jurisdictions about local public goods and head taxes. It is shown that delegation to benevolent jurisdictions will, in general, induce distortions away from efficiency, where efficiency means an efficient provision of local public goods and an efficient distribution of consumers. This distortion is caused by (1) the divergence between social and jurisdictional objectives, and (2) the impossibility for jurisdictions to realize side payments without modifying either the provision of local public goods or the distribution of consumers.
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