Cities in Fiscal Equalization
AbstractRedistributive grants schemes, such as fiscal equalization, are a common characteristic of local public finance in several countries. However, large and small jurisdictions are treated differently by the respective fiscal equalization schemes that often tend to favour larger jurisdictions. This paper provides a theoretical analysis showing that efficiency considerations might justify a preferential treatment of large jurisdictions. More specifically, we show that an efficient grant scheme would enable large jurisdictions such as cities to provide more public services. Under some conditions, the resulting budget of cities will exceed that of small towns in per-capita terms. Moreover, in a setting with local capital taxation we find that an efficient equalization scheme would also allow cities to retain a larger share of own funds.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2447.
Date of creation: 2008
Date of revision:
revenue sharing; fiscal equalization; agglomeration; tax competition; municipal finance;
Find related papers by JEL classification:
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
- R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
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