Advanced Search
MyIDEAS: Login

Rescuing the concept of vertical fiscal imbalance

Contents:

Author Info

  • Sharma, Chanchal Kumar

Abstract

This article restores the concept of vertical fiscal imbalance (VFI) to its original meaning. The literature shows that there is neither a universally accepted definition of VFI nor a commonly accepted approach to measuring it. Estimates of VFI are derived, much like accounting or deficit measurements, by comparing the revenues and expenditures of two levels of government. VFI is, however, too nuanced an issue to be described by this kind of national accounting procedure. We argue that ease of measurement should always take second place to the appropriateness of the economic concepts used; it makes no sense to adopt a definition that is convenient for measurement if it does not have a sound theoretical basis. The conventional definition of VFI however, falls into this trap, and the ad hoc definition was adopted for its expedience. This measure does not reflect whether taxes and expenditures across the various levels of government are too high, too low or about right. Unfortunately, the sacrifice of rigour for tractability has seriously harmed the quality of public policy debate on the issue.

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://mpra.ub.uni-muenchen.de/39343/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39343.

as in new window
Length:
Date of creation: May 2007
Date of revision: 2010
Handle: RePEc:pra:mprapa:39343

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: iscal federalism; intergovernmental relations; vertical fiscal imbalance; vertical fiscal gap;

Find related papers by JEL classification:

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. Chris Matier & Lisa Wu & Harriet Jackson, . "Analysing Vertical Fiscal Imbalance in a Framework of Fiscal Sustainability," Working Papers-Department of Finance Canada 2001-23, Department of Finance Canada.
  2. Walter Hettich & Stanley L. Winer, 1986. "Vertical Imbalance in the Fiscal Systems of Federal States," Canadian Journal of Economics, Canadian Economics Association, vol. 19(4), pages 745-65, November.
  3. James M. Buchanan & Richard A. Musgrave, 1999. "Public Finance and Public Choice: Two Contrasting Visions of the State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024624, December.
  4. Martin Besfamille & Ben Lockwood, 2008. "Bailouts In Federations: Is A Hard Budget Constraint Always Best?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 577-593, 05.
  5. Isabelle Joumard & Per Mathis Kongsrud, 2003. "Fiscal Relations across Government Levels," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 155-229.
  6. Eckhard Janeba & Guttorm Schjelderup, 2002. "Why Europe Should Love Tax Competition - and the U.S. Even More So," NBER Working Papers 9334, National Bureau of Economic Research, Inc.
  7. Dahlby, Bev & Rodden, Jonathan & Wilson, Sam, 2009. "A Median Voter Model of the Vertical Fiscal Gap," Working Papers 2009-14, University of Alberta, Department of Economics.
  8. Alexander Plekhanov & Raju Jan Singh, 2005. "How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence," IMF Working Papers 05/54, International Monetary Fund.
  9. Marko Köthenbürger, 2005. "Leviathans, federal transfers, and the cartelization hypothesis," Public Choice, Springer, vol. 122(3), pages 449-465, March.
  10. Ronald MacDonald & Paul Hallwood, 2004. "The Economic Case for Fiscal Federalism in Scotland," Working papers 2004-42, University of Connecticut, Department of Economics.
  11. 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.
  12. Rigmar Osterkamp & Markus Eller, 2003. "How Decentralised Is Government Activity?," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(1), pages 32-35, 02.
  13. Jorge Martinez-Vazquez, 2007. "Revenue Assignments in the Practice of Fiscal Decentralization," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0709, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  14. Signe Krogstrup, 2002. "What do Theories of Tax Competition Predict for Capital Taxes in EU Countries? A Review of the Tax Competition Literature," IHEID Working Papers 05-2002, Economics Section, The Graduate Institute of International Studies.
  15. Fisher, Ronald C., 1982. "Income and grant effects on local expenditure: The flypaper effect and other difficulties," Journal of Urban Economics, Elsevier, vol. 12(3), pages 324-345, November.
  16. Michael Keen, 1997. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Working Papers 97/173, International Monetary Fund.
  17. Wilson, L-S, 1996. "Federal-State Fiscal Arrangements in Malaysia," Working Papers 07, John Deutsch Institute for the Study of Economic Policy.
  18. Dahlby, Bev, 2009. "The Optimal Taxation Approach to Intergovernmental Grants," Working Papers 2009-16, University of Alberta, Department of Economics.
  19. B. Dahlby & L. S. Wilson, 1994. "Fiscal Capacity, Tax Effort, and Optimal Equalization Grants," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 657-72, August.
Full references (including those not matched with items on IDEAS)

Citations

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:pra:mprapa:39343. 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: (Ekkehart Schlicht).

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.