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When Transparency Goes Against Efficiency: Fiscal Equalization in a Context of Firm and Household Mobility

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  • Pascale Duran-Vigneron

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

The purpose of this paper is to investigate how the mobility of households and firms affects economic efficiency and whether a transparent system of equalization payments can be efficiency-enhancing. When local governments choose their fiscal policy taking into account the impact the policy will have on migration, the decentralized equilibrium does not result in a socially efficient allocation: central government intervention is required. However, assuming the transparency of fiscal equalization—that is local governments know the transfer formulas as advocated by the Council of Europe—no system of equalization transfers is able to ensure economic efficiency. The system has to combine a transparent transfer with a grant the formula of which is not known to local governments.

Suggested Citation

  • Pascale Duran-Vigneron, 2012. "When Transparency Goes Against Efficiency: Fiscal Equalization in a Context of Firm and Household Mobility," Post-Print hal-03550883, HAL.
    • Handle: RePEc:hal:journl:hal-03550883
    DOI: 10.1111/j.1467-9779.2011.01535.x
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    Cited by:

    1. Marie-Laure Breuillé & Pascale Duran-Vigneron, 2024. "Intermunicipal Cooperation in France and Related Tax Issues," NBER Chapters, in: Policy Responses to Tax Competition, National Bureau of Economic Research, Inc.
    2. Georg Anetsberger & Volker Arnold, 2019. "Horizontal versus vertical fiscal equalization: the assignment problem," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(2), pages 357-380, April.

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