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Fiscal Equalization, Tiebout Competition, and Incentives for Efficiency in a Federalist Country

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  • Philippe Widmer
  • Peter Zweifel

Abstract

The purpose of this article is twofold. First, it measures the efficiency in the provision of public goods by local jurisdictions applying data envelopment analysis (DEA). Second, it relates efficiency scores to a fiscal equalization scheme designed to mitigate the negative consequences of Tiebout competition. The data come from the twenty-six cantons of Switzerland (2000–2004), a country characterized by marked federalism. Results show the equalization scheme to indeed have a negative influence on performance, resulting in an efficiency–equity trade-off. However, substitution of earmarked payments by lump-sum payments as part of the 2008 reform is likely to enhance cantonal performance.

Suggested Citation

  • Philippe Widmer & Peter Zweifel, 2012. "Fiscal Equalization, Tiebout Competition, and Incentives for Efficiency in a Federalist Country," Public Finance Review, , vol. 40(1), pages 3-29, January.
  • Handle: RePEc:sae:pubfin:v:40:y:2012:i:1:p:3-29
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    Cited by:

    1. Philippe K. Widmer & George Elias & Peter Zweifel, 2012. "Improving efficiency through consolidation of jurisdictions? Evidence from the cantons of Switzerland," ECON - Working Papers 085, Department of Economics - University of Zurich.
    2. Hans Pitlik & Christina Seyfried, 2016. "Tax Autonomy of the Swiss Cantons: A Model for Austria?," WIFO Monatsberichte (monthly reports), WIFO, vol. 89(6), pages 423-435, June.
    3. Benny Geys & Jan Vermeir, 2014. "Party Cues In Elections Under Multilevel Governance: Theory And Evidence From Us States," Journal of the European Economic Association, European Economic Association, vol. 12(4), pages 1029-1058, August.
    4. Luca Crivelli & Paola Salari, 2012. "Fiscal federalism and income redistribution through healthcare financing: An empirical analysis for the Swiss cantons," CEPRA working paper 1204, USI Università della Svizzera italiana.
    5. Schaltegger Christoph A. & Winistörfer Marc M., 2014. "Zur Begrenzung der schleichenden Zentralisierung im Schweizerischen Bundesstaat / On government centralization and its limitation in Switzerland," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 65(1), pages 183-228, January.

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