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Fiscal Externalities and Efficient Transfers in a Federation Author info | Abstract | Publisher info | Download info | Related research | Statistics Motohiro Sato
This paper investigates properties of the second best allocation in a fiscal federal system in which both federal tax and intergovernmental grants are involved and the taxation is distortionary. Also, optimal federal grants and tax policies in a decentralized fiscal system are examined. Our major findings are: (i) the second best does not require the equalization of marginal cost of public funds across regions in a conventional form; (ii) matching grants based on either the local tax rates or tax revenues should be introduced to internalize the tax externality; and (iii) once lump-sum and matching grants are optimized, federal tax policy becomes redundant so the optimal fiscal gap is indeterminate. Copyright Kluwer Academic Publishers 2000
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Article provided by Springer in its journal International Tax and Public Finance .
Volume (Year): 7 (2000)
Issue (Month): 2 (March)
Pages: 119-139
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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:2:p:119-139Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915
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Keywords: tax externality ; equalization of MCPFs ; matching grants ; optimal fiscal gap ; Other versions of this item:
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
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