Abstract ：
Under partial fiscal decentralization, the transfer from the central government affects the local government's behavior. This paper examines the effect of transfers on the provision of local public goods in two asymmetrically-sized region models of monopolistic competition. Normally, the local government in a small region does not want to provide the local public goods because of low revenue. The transfer increases the incentive to provide it though it decreases the effect of tax revenue that depends on the regional economy.
The result depends on the type of transfer. First, the earmarked transfer stimulates the incentive to provide the local public goods. Similarly, the lump-sum transfer stimulates though the effect of manufacture dispersion decreases compared to the earmarked transfer case. The lump-sum transfer may not change the behavior of a small region's local government.

Keywords : Transfer; Asymmetric district; Industrial distribution; Local public good
JEL classification: H71, H73, R12, R32