Abstract

Chapter 26 considers how to assign the various allocational and distributional government functions to the different government levels within the federalist hierarchy to avoid potential incompatibilities and destructive competition among the governments. It highlights George Stigler’s prescription for assigning allocational functions to the lowest level of government, consistent with efficiency, and argues that all levels of the government have to participate in resolving the issue of the optimal income distribution to maintain an unambiguous meaning of social welfare maximization under federalism.

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