Reassessment of the Tiebout model

The Tiebout model has been the reference point for the classical approach to fiscal federalism. Its emphasis on mobility, benefit taxation, and the advantages of fiscal competition have informed fiscal federalism since the seminal contributions of Musgrave and Oates. This paper reviews the influence that the Tiebout model has had on fiscal federalism, and argues that while its insights remain relevant for local government, it is far from compelling as a positive description of, or a normative prescription for, fiscal federalism at the state level. Some aspects of alternative approaches are presented, which lead to different perspectives than Tiebout-inspired ones.

Research Highlights► The Tiebout model had considerable influence on early models of fiscal federalism. ► Tiebout-inspired approaches emphasize mobility, fiscal competition and benefit taxes. ► Limited mobility plays a more important role in alternative approaches. ► Modern fiscal federalism focuses on new rationales for expenditure decentralization. ► New approaches emphasize revenue centralization and intergovernmental transfers.