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A structural approach for analyzing fiscal equalization

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Abstract

Many countries apply cost-equalization and/or fiscal capacity equalization formulas to enable sub-national governments to provide comparable service standards at comparable tax rates. This paper demonstrates how measures of expenditure needs and fiscal capacity can be derived from a structural model of local government spending and taxing behavior. The structural parameters are shown to provide the information required to implement equalization according to the principle of horizontal equity.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 715.

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Date of creation: Nov 2012
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Handle: RePEc:ssb:dispap:715

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Keywords: Fiscal Equalization; Expenditure Needs; Fiscal Capacity; Structural Modeling;

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  1. Anwar Shah, 1996. "A Fiscal Need Approach to Equalization," Canadian Public Policy, University of Toronto Press, vol. 22(2), pages 99-115, June.
  2. Aaberge, Rolf & Langørgen, Audun & Mogstad, Magne & Østensen, Marit, 2008. "The Impact of Local Public Services and Geographical Cost of Living Differences on Poverty Estimates," IZA Discussion Papers 3686, Institute for the Study of Labor (IZA).
  3. Downes, Thomas A. & Pogue, Thomas F., 1994. "Adjusting School Aid Formulas for the Higher Cost of Educating Disadvantaged Students," National Tax Journal, National Tax Association, vol. 47(1), pages 89-110, March.
  4. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design is Taking the Con out of Econometrics," Working Paper Series of the German Council for Social and Economic Data 142, German Council for Social and Economic Data (RatSWD).
  5. Aaberge, Rolf & Langorgen, Audun, 2003. " Fiscal and Spending Behavior of Local Governments: Identification of Price Effects When Prices Are Not Observed," Public Choice, Springer, vol. 117(1-2), pages 125-61, October.
  6. Yinger, John, 1986. "On fiscal disparities across cities," Journal of Urban Economics, Elsevier, vol. 19(3), pages 316-337, May.
  7. Lluch, Constantino, 1973. "The extended linear expenditure system," European Economic Review, Elsevier, vol. 4(1), pages 21-32, April.
  8. Raj Chetty, 2008. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," NBER Working Papers 14399, National Bureau of Economic Research, Inc.
  9. Angus Deaton, 2010. "Instruments, randomization, and learning about development," Working Papers 1224, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  10. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects and Econometric Policy Evaluation," NBER Working Papers 11259, National Bureau of Economic Research, Inc.
  11. 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.
  12. Andrew Reschovsky & Jennifer Imazeki, 2003. "Let No Child Be Left Behind: Determining the Cost of Improving Student Performance," Public Finance Review, , vol. 31(3), pages 263-290, May.
  13. Kenneth I. Wolpin & Mark R. Rosenzweig, 2000. "Natural "Natural Experiments" in Economics," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 827-874, December.
  14. Rolf Aaberge & Manudeep Bhuller & Audun Langørgen & Magne Mogstad, 2010. "The distributional impact of public services when needs differ," Discussion Papers 621, Research Department of Statistics Norway.
  15. Allers, Maarten A., 2012. "Yardstick competition, fiscal disparities, and equalization," Economics Letters, Elsevier, vol. 117(1), pages 4-6.
  16. Duncombe, William & Yinger, John, 2005. "How much more does a disadvantaged student cost?," Economics of Education Review, Elsevier, vol. 24(5), pages 513-532, October.
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