A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany
AbstractSeveral recent studies suggest that equalizing transfers in a federal system may distort the tax policy decisions of states. We study this issue for the German federal fiscal system. In a simple theoretical model, we first identify a substitution effect and an income effect of equalizing transfers. Our main hypothesis is that both effects should tend to reduce tax revenue of German states. We perform various empirical tests which confirm this hypothesis.
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Bibliographic InfoPaper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20129.
Date of creation: 2002
Date of revision:
Publication status: Published in International Tax and Public Finance 6 9(2002): pp. 631-649
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