[327] FISCAL FEDERALISM: A VOTING SYSTEM WHERE SPILLOVERS TAPER OFF SPATIALLY

this paper we present a point voting system with declining weights on votes Abstract for the representation of spillover interests among governments in a federalist system. In theory our model represents a formalization in terms of voting of Musgrave’s proposal of varying benefit taxes to solve the problems caused by intergovernmental spillovers. We apply the voting system to a case of benefit incidence that tapers off spatially from a point of supply, although the principle involved can be generally applied to the whole range of benefit and cost spill-over activities on expenditure items among governments on the same or differ-ent levels. An important conclusion of our analysis is that there should ration-ally be two-way representation and regional partial voting rights in the theory and practice of fiscal federalism. Most theoretical treatments of fiscal federalism emanatefrom the principle of perfect correspondence between the government jurisdictions that provide public goods and the set of individuals who consume the goods. ’ Perfect correspondence insures that the costs and benefits from the provision of each public good are completely internalized. In effect, this principle is an alternative way of stating the optimality conditions for public goods, where welfare-maximizing governments provide Pareto-efficient levels of output for each public good via benefit taxa-tion.2 Unfortunately, perfect correspondence seldom holds in actual practice. As noted by Musgrave (1969), a case of probabl