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A Structural Approach for Measuring Fiscal Disparities

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  • Audun Langørgen
  • Rolf Aaberge

    ()
    (Statistics Norway)

Abstract

Fiscal disparities arise from differences in costs and capacity to produce a standard package of public services. This paper proposes to use a structural modelling approach as basis for measuring fiscal disparities across municipalities. This approach differs from the widely used reduced-form approach, in the sense that identification of minimum required costs or expenditure need is made by reference to a structural model of the fiscal and spending behavior of local governments. The empirical analysis, which is based on data for Norwegian municipalities, relies on various alternative measures of fiscal capacity. One of these measures is defined by the local tax-bases, whilst another also includes grants-in-aid from the central government. This facilitates identification of the equalizing effect from grants. By comparing the effects of the current grant system with the effects of a policy designed to reduce fiscal disparities it is demonstrated that the goal of locational neutrality is far from being fulfilled. Moreover, it is shown that differences in local priorities only give a minor contribution to the observed differences in service levels.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 254.

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Date of creation: Apr 1999
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Handle: RePEc:ssb:dispap:254

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Keywords: Local public finance; expenditure need; fiscal disparities; fiscal equalization;

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References

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  1. Le Grand, Julian, 1975. "Fiscal Equity and Central Government Grants to Local Authorities," Economic Journal, Royal Economic Society, vol. 85(339), pages 531-47, September.
  2. Lluch, Constantino, 1973. "The extended linear expenditure system," European Economic Review, Elsevier, vol. 4(1), pages 21-32, April.
  3. Thomas A. Downes & Thomas F. Pogue, 1992. "Intergovernmental Aid To Reduce Fiscal Disparities: Problems of Definition and Measurement," Public Finance Review, , vol. 20(4), pages 468-482, October.
  4. Rolf Aaberge & Audun Langørgen, 1997. "Fiscal and Spending Behavior of Local Governments: An Empirical Analysis Based on Norwegian Data," Discussion Papers 196, Research Department of Statistics Norway.
  5. Anwar Shah, 1996. "A Fiscal Need Approach to Equalization," Canadian Public Policy, University of Toronto Press, vol. 22(2), pages 99-115, June.
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Cited by:
  1. Audun Langørgen, 2000. "Revealed Standards for Distributing Public Home-Care on Clients," Discussion Papers 288, Research Department of Statistics Norway.
  2. Rolf Aaberge & Audun Langørgen, 2006. "Measuring The Benefits From Public Services: The Effects Of Local Government Spending On The Distribution Of Income In Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(1), pages 61-83, 03.

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