96-F-16. Ihori, Toshihiro and Nobuo Akai, "The Optimal Provision of Public Goods by Local and Central Governments", Aug. 1996.

In this paper, the optimal subsidizing scheme of the central government on the locally provided public good in the decentralized economy is examined when the central government also provides another public good. First, we examine the welfare effects of changes in the effective price of the locally provided public good and in the income tax rate, and derive some paradoxical results. Next, we investigate the optimal subsidy rates to the locally provided public good. It is derived that the optimal subsidy scheme is dependent on the relative efficiency of two types of public goods.