Fiscal equalization and regions' (un)willingness-to-tax: Evidence from Germany
AbstractUnder cooperative federalism, when an identical tax tariff applies to all regions of a federation, usually redistribution rules are implemented to smooth fiscal differences. The administration of tax collection, however, is sometimes delegated to the regional level, leaving the regional administrations some discretion concerning the auditing of tax returns. Building on a stylized model, we show that under such conditions granted discretionary tax deductions at the level of tax units is positively related to state-specific marginal rates of loss (MRL), i.e., the fraction of an additional tax Euro raised in a region that the fiscal-equalization system redistributes to other jurisdictions. We empirically test the model's presumption using administrative income-tax micro data from Germany. Regression estimates comply with the implications of our model. --
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Bibliographic InfoPaper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2011,06.
Date of creation: 2011
Date of revision:
Fiscal federalism; rate of loss; income tax returns;
Find related papers by JEL classification:
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-08-09 (Accounting & Auditing)
- NEP-ALL-2011-08-09 (All new papers)
- NEP-GEO-2011-08-09 (Economic Geography)
- NEP-PBE-2011-08-09 (Public Economics)
- NEP-URE-2011-08-09 (Urban & Real Estate Economics)
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