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Fiscal equalisation schemes and sub-central government borrowing

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  • Salvador Barrios
  • Diego Martínez

Abstract

We analyse the role played by fiscal equalisation schemes in determining sub-national borrowing. We test econometrically the link between the regional government primary fiscal balances and the GDP per capita in Canada, Germany and Spain. We find that either poor or rich regions can display higher regional public borrowing on average and explain how these results can be linked to the institutional design of regional equalisation systems in place in these countries. Particularly, elements such as tax effort and fiscal capacities play a relevant role in this regard. Reforms of these schemes can therefore prove instrumental in reducing regional heterogeneity in public borrowing.

Suggested Citation

  • Salvador Barrios & Diego Martínez, 2014. "Fiscal equalisation schemes and sub-central government borrowing," Working Papers. Collection A: Public economics, governance and decentralization 1401, Universidade de Vigo, GEN - Governance and Economics research Network.
  • Handle: RePEc:gov:wpaper:1401
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    More about this item

    Keywords

    fiscal equalisation; public deficit; fiscal capacity; taxation.;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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