Fiscal institutions and wage bargaining in the local public sector

In a theoretical analysis of the properties of different wage setting and f inancing systems in the local public sector, two financing systems are cons idered. A benchmark model with local financing through local taxes is compa red with a system of centralized financing through grants, where taxes are decided at the national level. It is shown that the wage outcomes under cen tralized financing depend heavily on the order of moves in the budgetary ga me between the central and local levels.