Revenue Redistribution and Stabilization in the Belgian Federation

This article presents an analysis of equalization of both regional household income and regional government income in Belgium. We look at the extent to which long-term fiscal disparities across regions are reduced (redistribution) and at the amount of smoothing provided against asymmetric macroeconomic shocks (stabilization). We discover that equalization of household income between regions through the tax and transfer system in Belgium represents a form of both redistribution and to a lesser extent stabilization. Social security transfers are the most important factor, in contrast to income and property taxes whose contribution to redistribution and stabilization is limited. The analysis with regard to equalization of regional government income shows that the funding system of regional authorities is clearly based on equity considerations, rather than on concern for interregional stabilization. The overcompensation of long-term interregional differences in regional government income reflects the lack of accountability in the current funding system.