Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions

Contents:

Author Info

  • Sam Bucovetsky
  • Michael Smart

Abstract

This paper shows how a popular system of federal revenue equalization grants can limit tax competition among subnational governments, correct fiscal externalities, and increase government spending. Remarkably, an equalization grant can implement efficient policy choices by regional governments, regardless of a wide variety of differences in regional tax capacity, tastes for public spending, and population. Thus, compared to other corrective devices, equalization achieves “robust” implementation. If aggregate tax bases are elastic, however, equalization leads to excessive taxation. Efficiency can be achieved by a modified formula that equalizes a fraction of local revenue deficiencies equal to the fraction of taxes that are shifted backward to factor suppliers.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2002/wp-cesifo-2002-08/cesifo_wp767.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 767.

as in new window
Length:
Date of creation: 2002
Date of revision:
Handle: RePEc:ces:ceswps:_767

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Email:
Web page: http://www.cesifo.de
More information through EDIRC

Related research

Keywords: tax competition; intergovernmental grants;

Other versions of this item:

References

References listed on IDEAS
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.:
as in new window
  1. Alejandro Esteller-Moré & Albert Solé-Ollé, 2002. "Tax Setting in a Federal System: The Case of Personal Income Taxation in Canada," International Tax and Public Finance, Springer, Springer, vol. 9(3), pages 235-257, May.
  2. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(2), pages 289-96, April.
  3. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
  4. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 21(3), pages 333-350, November.
  5. Laussel, Didier & Le Breton, Michel, 1998. "Existence of Nash equilibria in fiscal competition models," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 28(3), pages 283-296, May.
  6. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  7. BUCOVETSKY, Sam & MARCHAND, Maurice & PESTIEAU, Pierre, . "Tax competition and revelation of preferences for public expenditure," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1352, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Gary-Bobo, R.J., 1987. "Cournot-Walras and locally consistent equilbria," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1987053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers, John Deutsch Institute for the Study of Economic Policy 4, John Deutsch Institute for the Study of Economic Policy.
  10. Charles Figuieres & Jean Hindriks & Gareth D. Myles, 2004. "Revenue Sharing versus Expenditure Sharing in a Federal System," International Tax and Public Finance, Springer, Springer, vol. 11(2), pages 155-174, 03.
  11. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 15(4), pages 613-33, November.
  12. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  13. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 363-370, March.
  14. Card, David & Payne, A. Abigail, 2002. "School finance reform, the distribution of school spending, and the distribution of student test scores," Journal of Public Economics, Elsevier, Elsevier, vol. 83(1), pages 49-82, January.
  15. FIGUIÈRES, Charles & HINDRIKS, Jean & MYLES, Gareth D., 2001. "Revenue sharing versus expenditure sharing," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, American Economic Association, vol. 81(4), pages 757-74, September.
  17. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  18. Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(1), pages 189-206, February.
  19. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Preserving Market Incentives," Working Papers, Stanford University, Department of Economics 97042, Stanford University, Department of Economics.
  20. Marko Köthenbürger, 2002. "Tax Competition and Fiscal Equalization," International Tax and Public Finance, Springer, Springer, vol. 9(4), pages 391-408, August.
  21. DePeter James A. & Myers Gordon M., 1994. "Strategic Capital Tax Competition: A Pecuniary Externality and a Corrective Device," Journal of Urban Economics, Elsevier, vol. 36(1), pages 66-78, July.
  22. Masayoshi Hayashi & Robin Boadway, 2001. "An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 34(2), pages 481-503, May.
  23. Brennan,Geoffrey & Buchanan,James M., 1980. "The Power to Tax," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521233293.
  24. repec:fth:louvco:0115 is not listed on IDEAS
  25. Flatters, Frank & Henderson, Vernon & Mieszkowski, Peter, 1974. "Public goods, efficiency, and regional fiscal equalization," Journal of Public Economics, Elsevier, Elsevier, vol. 3(2), pages 99-112, May.
  26. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  27. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 64, pages 416.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Heizt der Finanzausgleich den Steuerwettbewerb an?
    by admin in BATZ.ch on 2010-05-16 21:01:57
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_767. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.