Cities in Fiscal Equalization
Redistributive grants schemes, such as fiscal equalization, are a common characteristic of local public finance in several countries. However, large and small jurisdictions are treated differently by the respective fiscal equalization schemes that often tend to favour larger jurisdictions. This paper provides a theoretical analysis showing that efficiency considerations might justify a preferential treatment of large jurisdictions. More specifically, we show that an efficient grant scheme would enable large jurisdictions such as cities to provide more public services. Under some conditions, the resulting budget of cities will exceed that of small towns in per-capita terms. Moreover, in a setting with local capital taxation we find that an efficient equalization scheme would also allow cities to retain a larger share of own funds.
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- Thiess BÃ¼ttner & FÃ©dÃ©ric Holm-Hadulla, 2008. "Fiscal Equalization: The Case of German Municipalities," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(1), pages 16-20, 04.
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- Thiess Büttner, 2005. "The Incentive Effect of Fiscal Equalization Transfers on Tax Policy," CESifo Working Paper Series 1404, CESifo Group Munich.
- Sam Bucovetsky & Michael Smart, 2006. "The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(1), pages 119-144, January.
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- Robert Fenge & Volker Meier, 2001. "Why Cities Should not be Subsidized," CESifo Working Paper Series 546, CESifo Group Munich.
- Fenge, Robert & Meier, Volker, 2002. "Why cities should not be subsidized," Munich Reprints in Economics 20356, University of Munich, Department of Economics.
- B. Dahlby & L. S. Wilson, 1994. "Fiscal Capacity, Tax Effort, and Optimal Equalization Grants," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 657-672, August.
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- 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. Full references (including those not matched with items on IDEAS)
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