Equalisation grants can affect a state's fiscal behaviour because its tax policies can affect the size of its grant. For a large state, an increase in its tax rate will increase the standard tax rate used to calculate the grant for that base and thereby reduce (increase) the state's grant if it has a high (low) relative fiscal capacity with respect to that base. In addition, a state's grant will increase if its relative fiscal capacity declines when it raises its tax rates. Our econometric results indicate that the equalisation system may have affected the Australian states' choice of tax rates. Copyright 2003. The Economic Society of Australia.
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Article provided by The Economic Society of Australia in its journal The Economic Record.
Volume (Year): 79 (2003) Issue (Month): 247 (December) Pages: 434-445 Download reference. The following formats are available: HTML
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