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A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany

  • Christian Baretti


  • Bernd Huber


  • Karl Lichtblau
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    Several recent studies suggest that equalizing transfers in a federal system may distort the tax policy decisions of states. We study this issue for the German federal fiscal system. In a simple theoretical model, we first identify a substitution effect and an income effect of equalizing transfers. Our main hypothesis is that both effects should tend to reduce tax revenue of German states. We perform various empirical tests which confirm this hypothesis. Copyright Kluwer Academic Publishers 2002

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    Article provided by Springer & International Institute of Public Finance in its journal International Tax and Public Finance.

    Volume (Year): 9 (2002)
    Issue (Month): 6 (November)
    Pages: 631-649

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    Handle: RePEc:kap:itaxpf:v:9:y:2002:i:6:p:631-649
    DOI: 10.1023/A:1020925812428
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    1. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Eckhard Wurzel, 1999. "Towards More Efficient Government: Reforming Federal Fiscal Relations in Germany," OECD Economics Department Working Papers 209, OECD Publishing.
    3. Massimo Bordignon & Paolo Manasse & Guido Tabellini, . "Optimal Regional Redistribution Under Asymmetric Information," Working Papers 93, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 189-206, February.
    5. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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