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The Fiscal Incentive Effects of the Australian Equalisation System

Author

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  • Bev Dahlby and Neil Warren

    (Department of Economics, University of Alberta, Canada; ATAX, University of New South Wales)

Abstract

Equalisation grants can affect a state's fiscal behaviour because its tax policies can affect the size of its grant. For a large state, an increase in its tax rate will increase the standard tax rate used to calculate the grant for that base and thereby reduce (increase) the state's grant if it has a high (low) relative fiscal capacity with respect to that base. In addition, a state's grant will increase if its relative fiscal capacity declines when it raises an additional tax revenue. Our econometric results indicate that the equalisation system may have affected the Australian state's choice of tax rates

Suggested Citation

  • Bev Dahlby and Neil Warren, 2002. "The Fiscal Incentive Effects of the Australian Equalisation System," Taxation Discussion Paper #10, ATAX, University of New South Wales.
  • Handle: RePEc:nsw:discus:10
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    File URL: http://www.atax.unsw.edu.au/research/RePEc/discus/ATAXDiscussionPaperNo10.pdf
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    Keywords

    fiscal federalism; federal grants; equalisation; marginal cost of funds; taxation;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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