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Accountability and fiscal equalization

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Author Info

  • Kotsogiannis, Christos
  • Schwager, Robert

Abstract

A common feature of multi-jurisdictional systems is equalization programs. The implementation of such programs, that is based on some measurement of sub-national fiscal capacity and effort, is particularly complex. Within a political economy model, this paper analyzes the impact of such systems on accountability, identifying a positive and a negative effect. The positive effect arises because with equalized fiscal resources, a consequence of equalization, citizens attach more importance to any remaining variation in public good supplies and so punish rent-taking more severely. This induces politicians to restrain themselves and so accountability improves. The negative effect arises because the complexity of such programs reduces the informational content of observed public good supplies. This introduces a perverse fiscal incentive that reduces accountability. Thus, the overall impact of equalization programs on accountability depends on the balance of these effects.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 12 (December)
Pages: 2336-2349

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:12:p:2336-2349

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Equalization transfer programs Rent-seeking Yardstick fiscal competition Fiscal federalism;

References

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  1. WILDASIN, David E., . "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," CORE Discussion Papers RP -831, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  3. Bev Dahlby & Neil Warren, 2003. "Fiscal Incentive Effects of the Australian Equalisation System," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 434-445, December.
  4. Christos Kotsogiannis & Robert Schwager, 2006. "Fiscal Equalization and Yardstick Competition," CESifo Working Paper Series 1865, CESifo Group Munich.
  5. Timothy Besley & Michael Smart, 2005. "Fiscal Restraints and Voter Welfare," STICERD - Political Economy and Public Policy Paper Series 06, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  6. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, vol. 72(1), pages 1-37, April.
  7. Sotiris Karkalakos & Christos Kotsogiannis, 2007. "A spatial analysis of provincial corporate income tax responses: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 40(3), pages 782-811, August.
  8. Thiess Buettner, 2005. "The Incentive Effect of Fiscal Equalization Transfers on Tax Policy," CESifo Working Paper Series 1404, CESifo Group Munich.
  9. Paul Belleflamme & Jean Hindriks, 2005. "Yardstick competition and political agency problems," Social Choice and Welfare, Springer, vol. 24(1), pages 155-169, 09.
  10. Lockwood, Ben, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Wiley Blackwell, vol. 69(2), pages 313-37, April.
  11. Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 189-206, February.
  12. Federico Revelli, 2004. "Performance Rating and Yardstick Competition in Social Service Provision," CESifo Working Paper Series 1270, CESifo Group Munich.
  13. Sam Bucovetsky & Michael Smart, 2002. "The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions," CESifo Working Paper Series 767, CESifo Group Munich.
  14. Hofman, Bert & Kadjatmiko & Kaiser, Kai & Suharnoko Sjahrir, Bambang, 2006. "Evaluating fiscal equalization in Indonesia," Policy Research Working Paper Series 3911, The World Bank.
  15. Johansson, Eva, 2003. "Intergovernmental grants as a tactical instrument: empirical evidence from Swedish municipalities," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 883-915, May.
  16. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2004. "Yardstick competition in intergovernmental relationships: theory and empirical predictions," Economics Letters, Elsevier, vol. 83(3), pages 325-333, June.
  17. Christian Baretti & Bernd Huber & Karl Lichtblau, 2002. "A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany," International Tax and Public Finance, Springer, vol. 9(6), pages 631-649, November.
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Citations

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Cited by:
  1. Axel Dreher & Kai Gehring & Christos Kotsogiannis & Silvia Marchesi, 2013. "Information Transmission within Federal Fiscal Architectures: Theory and Evidence," CESifo Working Paper Series 4400, CESifo Group Munich.
  2. Pierre Salmon, 2013. "Horizontal competition in multilevel governmental settings," Working Papers hal-00830876, HAL.
  3. Allers, Maarten A., 2012. "Yardstick competition, fiscal disparities, and equalization," Economics Letters, Elsevier, vol. 117(1), pages 4-6.

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