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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
    DOI: 10.1177/1091142111422437
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    Cited by:

    1. 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.
    2. Nakatani, Ryota, 2023. "Revenue Decentralization and the Probability of a Fiscal Crisis: Is There a Tipping Point for Adverse Effects?," MPRA Paper 119032, University Library of Munich, Germany.
    3. 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.
    4. Ivo Bischoff & Peter Bönisch & Peter Haug & Annette Illy, 2019. "Vertical Grants and Local Public Efficiency: The Inference-disturbing Effect of Fiscal Equalization," Public Finance Review, , vol. 47(3), pages 558-584, May.
    5. Hans Pitlik & Christina Seyfried, 2016. "Steuerautonomie der Schweizer Kantone: Vorbild für Österreich?," WIFO Monatsberichte (monthly reports), WIFO, vol. 89(6), pages 423-435, June.
    6. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2022. "On the effects of intergovernmental grants: a survey," Working Papers. Collection A: Public economics, governance and decentralization 2204, Universidade de Vigo, GEN - Governance and Economics research Network.
    7. 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.
    8. 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.
    9. Jose M Alonso & Rhys Andrews, 2019. "Fiscal decentralisation and local government efficiency: Does relative deprivation matter?," Environment and Planning C, , vol. 37(2), pages 360-381, March.

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