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

Evaluating the Efficiency and Equity of Federal Fiscal Equalization

Contents:

Author Info

  • David Albouy

Abstract

In theory, federal transfers that make household location decisions efficient should ignore local cost differences, subsidize positive externalities, and offset differences in federal-tax payments and local taxes levied on non-residents, but not local tax revenues from residents. Transfers that redistribute resources equitably across regions will likely target areas with individuals of low earnings potential or low real incomes. Applying these criteria empirically, Canadian equalization policy appears neither efficient nor equitable, but exacerbates pre-existing inefficiencies and underfunds minorities. Locational inefficiencies cost Canada 0.41 percent of income annually and cause over-funded provinces to have populations 31 percent beyond their efficient long-run levels. The hard copy version of this paper was accidentally printed without tables. Print subscribers may access the full file by downloading here. Individual purchasers of paper copies can email subs@nber.org for the full file. Our apologies for the error.

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.nber.org/papers/w16144.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16144.

as in new window
Length:
Date of creation: Jul 2010
Date of revision:
Publication status: published as Albouy, David, 2012. "Evaluating the efficiency and equity of federal fiscal equalization," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 824-839.
Handle: RePEc:nbr:nberwo:16144

Note: PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

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. Bradford, David F & Oates, Wallace E, 1971. "Towards a Predictive Theory of Intergovernmental Grants," American Economic Review, American Economic Association, vol. 61(2), pages 440-48, May.
  2. Edward L. Glaeser & Joshua D. Gottlieb, 2008. "The Economics of Place-Making Policies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 155-253.
  3. Caroline M. Hoxby, 1998. "All School Finance Equalizations Are Not Created Equal," NBER Working Papers 6792, National Bureau of Economic Research, Inc.
  4. Robin Boadway & Masayoshi Hayashi, 2002. "An Evaluation of the Risk-Sharing Function of Equalization in Canada," Working Papers 1006, Queen's University, Department of Economics.
  5. Tobin, James, 1970. "On Limiting the Domain of Inequality," Journal of Law and Economics, University of Chicago Press, vol. 13(2), pages 263-77, October.
  6. Reschovsky, Andrew, 1994. "Fiscal Equalization and School Finance," National Tax Journal, National Tax Association, vol. 47(1), pages 185-97, March.
  7. Yinger, John, 1986. "On fiscal disparities across cities," Journal of Urban Economics, Elsevier, vol. 19(3), pages 316-337, May.
  8. Downes, Thomas A., 1992. "Evaluating the Impact of School Finance Reform on the Provision of Public Education: The California Case," National Tax Journal, National Tax Association, vol. 45(4), pages 405-19, December.
  9. 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, vol. 15(4), pages 613-33, November.
  10. Mieszkowski, Peter & Musgrave, Richard A., 1999. "Federalism, Grants, and Fiscal Equalization," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 239-60, June.
  11. Richard A. Musgrave, 1997. "Devolution, Grants, and Fiscal Competition," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 65-72, Fall.
  12. Mieszkowski, Peter & Zodrow, George R, 1989. "Taxation and the Tiebout Model: The Differential Effects of Head Taxes, Taxes on Land Rents, and Property Taxes," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1098-1146, September.
  13. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 43-64, Fall.
  14. Matias Busso & Jesse Gregory & Patrick Kline, 2013. "Assessing the Incidence and Efficiency of a Prominent Place Based Policy," American Economic Review, American Economic Association, vol. 103(2), pages 897-947, April.
  15. Thomas J. Courchene & David A. Beavis, 1973. "Federal-Provincial Tax Equalization: An Evaluation," Canadian Journal of Economics, Canadian Economics Association, vol. 6(4), pages 483-502, November.
  16. James M. Buchanan, 1952. "Federal Grants and Resource Allocation: A Reply," Journal of Political Economy, University of Chicago Press, vol. 60, pages 536.
  17. Oded Hochman & David Pines, 1993. "Federal Income Tax and Its Effects On Inter- and Intracity Resource Allocation," Public Finance Review, , vol. 21(3), pages 276-304, July.
  18. David Albouy & Fernando Leibovici & Casey Warman, 2013. "Quality of life, firm productivity, and the value of amenities across Canadian cities," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 379-411, May.
  19. Myers & G.M., 1989. "Optimality, Free Mobility And The Regional Authority In Federation," Working Papers 10, John Deutsch Institute for the Study of Economic Policy.
  20. David Albouy, 2009. "What Are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values," NBER Working Papers 14981, National Bureau of Economic Research, Inc.
  21. Courant, Paul N., 1994. "How Would You Know a Good Economic Policy If You Tripped Over One? Hint: Don't Just Count Jobs," National Tax Journal, National Tax Association, vol. 47(4), pages 863-81, December.
  22. Usher, Dan, 1977. "Public Property and the Effects of Migration upon Other Residents of the Migrants' Countries of Origin and Destination," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 1001-20, October.
  23. David Albouy, 2009. "The Unequal Geographic Burden of Federal Taxation," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 635-667, 08.
  24. Ladd, Helen F. & Yinger, John, 1994. "The Case for Equalizing Aid," National Tax Journal, National Tax Association, vol. 47(1), pages 211-24, March.
  25. Robin Boadway & Masayoshi Hayashi, 2004. "An Evaluation of the Stabilization Properties of Equalization in Canada," Canadian Public Policy, University of Toronto Press, vol. 30(1), pages 91-109, March.
  26. Dan Usher, 2007. "The Reform of Equalization Payments," Working Papers 1121, Queen's University, Department of Economics.
  27. H. P. Jenkins, 1951. "Fiscal Equity in the Unequal Treatment of Unequals: A Suggested Test," Journal of Political Economy, University of Chicago Press, vol. 59, pages 353.
  28. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  29. Glaeser, E. L., 1998. "Should transfer payments be indexed to local price levels?," Regional Science and Urban Economics, Elsevier, vol. 28(1), pages 1-20, January.
  30. William G. Watson, 1986. "An Estimate of the Welfare Gain from Fiscal Equalization," Canadian Journal of Economics, Canadian Economics Association, vol. 19(2), pages 298-308, May.
  31. James M. Buchanan, 1949. "The Pure Theory of Government Finance: A Suggested Approach," Journal of Political Economy, University of Chicago Press, vol. 57, pages 496.
  32. L. S. Wilson, 2003. "Equalization, Efficiency and Migration: Watson Revisited," Canadian Public Policy, University of Toronto Press, vol. 29(4), pages 385-395, December.
  33. James M. Buchanan, 1952. "Federal Grants and Resource Allocation," Journal of Political Economy, University of Chicago Press, vol. 60, pages 208.
  34. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
  35. Buchanan, James M. & Goetz, Charles J., 1972. "Efficiency limits of fiscal mobility: An assessment of the tiebout model," Journal of Public Economics, Elsevier, vol. 1(1), pages 25-43, April.
  36. Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 189-206, February.
  37. Bradford, David F & Oates, Wallace E, 1971. "An Analysis of Revenue Sharing in a New Approach to Collective Fiscal Decisions," The Quarterly Journal of Economics, MIT Press, vol. 85(3), pages 416-39, August.
  38. Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, vol. 63(3), pages 280-96, June.
  39. Oakland, William H., 1994. "Fiscal Equalization: An Empty Box?," National Tax Journal, National Tax Association, vol. 47(1), pages 199-209, March.
  40. Wildasin, David E., 1980. "Locational efficiency in a federal system," Regional Science and Urban Economics, Elsevier, vol. 10(4), pages 453-471, November.
  41. Richard A. Musgrave, 1961. "Approaches to a Fiscal Theory of Political Federalism," NBER Chapters, in: Public Finances: Needs, Sources, and Utilization, pages 97-134 National Bureau of Economic Research, Inc.
  42. Oates, Wallace E., 1988. "On the measurement of congestion in the provision of local public goods," Journal of Urban Economics, Elsevier, vol. 24(1), pages 85-94, July.
  43. Flatters, Frank & Henderson, Vernon & Mieszkowski, Peter, 1974. "Public goods, efficiency, and regional fiscal equalization," Journal of Public Economics, Elsevier, vol. 3(2), pages 99-112, May.
  44. Thomas J. Courchene, 1981. "A Market Perspective on Regional Disparities," Canadian Public Policy, University of Toronto Press, vol. 7(4), pages 506-518, Autumn.
  45. James M. Buchanan & Richard E. Wagner, 1970. "An Efficiency Basis for Federal Fiscal Equalization," NBER Chapters, in: The Analysis of Public Output, pages 139-162 National Bureau of Economic Research, Inc.
  46. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, December.
  47. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  48. Shaw, R Paul, 1986. "Fiscal versus Traditional Market Variables in Canadian Migration," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 648-66, June.
  49. A. D. Scott, 1952. "Federal Grants and Resource Allocation," Journal of Political Economy, University of Chicago Press, vol. 60, pages 534.
  50. James M. Buchanan, 1951. "Fiscal Equity in the Unequal Treatment of Unequals: A Rejoinder," Journal of Political Economy, University of Chicago Press, vol. 59, pages 358.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Boadway, Robin & Tremblay, Jean-Fran├žois, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
  2. Jorge Martinez-Vazquez & Andrey Timofeev, 2014. "Capital Infrastructure and Equity Objectives in Decentralized Systems," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1410, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Wouter Vermeulen & Maarten Allers, 2013. "Fiscal Equalization and Capitalization: Evidence from a Policy Reform," CPB Discussion Paper 245, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Patrick Kline & Enrico Moretti, 2013. "Local Economic Development, Agglomeration Economies and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority," Working Paper Series 43_13, The Rimini Centre for Economic Analysis.
  5. David Albouy & Fernando Leibovici & Casey Warman, 2012. "Quality of Life, Firm Productivity, and the Value of Amenities across Canadian Cities," NBER Working Papers 18103, National Bureau of Economic Research, Inc.
  6. Emilie CALDEIRA, 2011. "Does the system of allocation of intergovernmental transfers in Senegal eliminate politically motivated targeting?," Working Papers 201105, CERDI.
  7. Jorge Martinez-Vazquez & Andrey Timofeev, 2012. "Propensity to Invest and the Additionality of Capital Transfers: A Country Panel Perspective," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1216, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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:nbr:nberwo:16144. 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: ().

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.