Inter-jurisdictional cost-sharing of public spending

This paper deals with the issue of how two geographically separate jurisdictions share the cost of a centralized and uniformly provided public good. The key assumption is that jurisdictional representatives make decision by bargaining in the centralised legislature. Results suggest that jurisdictions may reach a mutually beneficial agreement by equalising the net welfare gain produced by the provision of the public good, rather than the public good cost. The model identifies the efficiency and redistributive implications of such an agreement.