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Insurance and Incentive Effects of Transfers among Regions: Equity and Efficiency

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  • S. Bucovetsky

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Abstract

When productivity shocks across regions are less-than-perfectlycorrelated, there are gains from federation, even if the regionsare identical ex ante. For the federation to provide insurancefor these productivity shocks, it must introduce some sort of“equalizing” transfer programme among regions. But any suchtransfer programme induces a form of moral hazard as well, ifregions still have some control over their own policies. Oneof the implications of this moral hazard is that the progressivityof the overall (regional together with federal) tax system willbe increased when the federal transfer programme is expanded. Copyright Kluwer Academic Publishers 1997

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  • S. Bucovetsky, 1997. "Insurance and Incentive Effects of Transfers among Regions: Equity and Efficiency," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 463-483, November.
  • Handle: RePEc:kap:itaxpf:v:4:y:1997:i:4:p:463-483 DOI: 10.1023/A:1008660931233
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    References listed on IDEAS

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    11. Michael Smart, 1996. "Taxation incentives and deadweight loss in a system of intergovernmental transfers," Working Papers msmart-96-03, University of Toronto, Department of Economics.
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    Citations

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    Cited by:

    1. GRECO, Luciano, 2003. "Optimal grants under asymmetric information: federalism versus devolution," CORE Discussion Papers 2003024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Vermeulen, W. & Allers, Maarten, 2014. "Fiscal equalization, capitalization and the flypaper effect," Research Report 14023-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    3. Ogawa, Hikaru & Wang, Wenming, 2016. "Asymmetric tax competition and fiscal equalization in a repeated game setting," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 1-10.
    4. Wildasin, David E., 2004. "The Institutions of Federalism: Toward an Analytical Framework," National Tax Journal, National Tax Association, pages 247-272.
    5. Buettner, Thiess, 2009. "The contribution of equalization transfers to fiscal adjustment: Empirical results for German municipalities and a US-German comparison," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 417-431, September.
    6. Robert Fenge & Jakob von Weizsäcker, 2001. "How Much Fiscal Equalization? A Constitutional Approach," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 623-623, December.
    7. Konrad, Kai A. & Seitz, Helmut, 2001. "Fiscal federalism and risk sharing in Germany: the role of size differences
      [Risikokonsolidierung im Rahmen des deutschen Länderfinanzausgleichs: die Rolle von Größenunterschieden]
      ," Discussion Papers, Research Unit: Market Processes and Governance FS IV 01-20, Social Science Research Center Berlin (WZB).
    8. 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.
    9. Hans-Günter Krüsselberg, 2005. "Milton Friedman und der Wissenschaftliche Beirat für Familienfragen Elternkompetenz und Anteilscheine am Schulbudget – Gedanken über Reformpotenziale," Marburg Working Papers on Economics 200506, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    10. repec:dgr:rugsom:14023-eef is not listed on IDEAS
    11. Wallace Oates, 2005. "Toward A Second-Generation Theory of Fiscal Federalism," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 349-373, August.

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