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Fiscal Equalization and Yardstick Competition

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Author Info

  • Christos Kotsogiannis

    ()
    (Department of Economics, School of Business and Economics, University of Exeter, Streatham Court, Rennes Drive, Exeter EX4 4PU, England, UK)

  • Robert Schwager

    (Georg-August-Universität Göttingen and Zentrum für Europäische Wirtschaftsforschung, Mannheim, Platz der Göttinger Sieben 3, D-37073 Göttingen)

Abstract

A multi-jurisdictional system is thought to improve, through yardstick competition, accountability. At the same time equalization programs, a common feature of multijurisdictional systems, are thought to be a prerequisite for both efficiency of the internal market and the equity objective of the equal treatment of equals. This paper shows that such programs, by reducing the information context of comparisons across jurisdictions, introduce perverse fiscal incentives and thus reduce accountability. The consequence of this is that equilibrium rent-taking increases with the intensity of equalization transfers.

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Bibliographic Info

Paper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2006-15.

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Length: 24 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:ifr:wpaper:2006-15

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Keywords: Equalization transfer programs; fiscal capacity; rent-seeking; fiscal federalism;

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References

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Citations

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Cited by:
  1. Hikaru Ogawa & David Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," Working Papers 2007-06, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  2. David Wildasin, 2007. "Pre-Emption: Federal Statutory Intervention in State Taxation," Working Papers 2007-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  3. Oto-Peralías, Daniel & Romero-Ávila, Diego & Usabiaga, Carlos, 2013. "Does fiscal decentralization mitigate the adverse effects of corruption on public deficits?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 205-231.
  4. Alexander Kalb, 2010. "The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 40(1), pages 21-63, March.
  5. Weingast, Barry R., 2009. "Second generation fiscal federalism: The implications of fiscal incentives," Journal of Urban Economics, Elsevier, vol. 65(3), pages 279-293, May.
  6. Kalb, Alexander, 2008. "The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities," ZEW Discussion Papers 08-051, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Kotsogiannis, Christos & Schwager, Robert, 2008. "Accountability and fiscal equalization," Journal of Public Economics, Elsevier, vol. 92(12), pages 2336-2349, December.

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