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Fiscal Equalisation: Some Questions of Design

  • Geoffrey Brennan

    ()

    (Australian National University, Canberra)

  • Jonathan J. Pincus

    ()

    (Productivity Commission, Melbourne)

The case for fiscal equalisation can arise because of differences between states' average incomes or populations. In this paper, we examine the latter in a simple case, using different formulations of the social welfare function: Benthamite; Rawlsian; and Nash. We distinguish, in the process, two different understandings of efficiency abroad in economics — a Paretian notion, that is irrelevant to the case in hand; and a quasi-utilitarian sense. We conclude that fiscal equalisation is required only in the Rawlsian case. In all other cases, private goods consumption should be equalised — but no fiscal equalisation is required.

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Article provided by SIPI Spa in its journal Rivista di Politica Economica.

Volume (Year): 94 (2004)
Issue (Month): 4 (July-August)
Pages: 79-104

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Handle: RePEc:rpo:ripoec:v:94:y:2004:i:4:p:79-104
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