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Tax Islands, Fiscal Equity, and Fiscal Equalization

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  • Robert W. Gilmer

    (Institute for Defense Analyses Arlington, Virginia)

Abstract

Equalization of the tax bases of a federal system has been approached by the economic literature from the perspectives of both equity and Abstract efficiency. These arguments for equalization have generally assumed unrestricted mobility among residents of the federalism. A third approach is considered in this paper, in which it is argued that districts within a federal system may develop as tax shelters (or tax islands or tax colonies) to reduce the tax burden of their residents. The approach employed here moves away from the more traditional models by not incorporating an assumption of unrestricted residential choice. The tax island is seen as a case of the fiscally rich successfully disassociating themselves from the fiscally poor. The formulation yields insight into the limitations and advantages of fiscal equalization policies.

Suggested Citation

  • Robert W. Gilmer, 1976. "Tax Islands, Fiscal Equity, and Fiscal Equalization," Public Finance Review, , vol. 4(4), pages 479-492, October.
    • Handle: RePEc:sae:pubfin:v:4:y:1976:i:4:p:479-492
    DOI: 10.1177/109114217600400407
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    References listed on IDEAS

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    4. James M. Buchanan & Richard E. Wagner, 1970. "An Efficiency Basis for Federal Fiscal Equalization," NBER Chapters, in: The Analysis of Public Output, pages 139-162, National Bureau of Economic Research, Inc.
    5. Julius Margolis, 1970. "The Analysis of Public Output," NBER Books, National Bureau of Economic Research, Inc, number marg70-1, March.
    6. Charles M. Tiebout, 1961. "An Economic Theory of Fiscal Decentralization," NBER Chapters, in: Public Finances: Needs, Sources, and Utilization, pages 79-96, National Bureau of Economic Research, Inc.
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