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The Fiscal Incentive Effects of the Australian Equalisation System

  • Bev Dahlby and Neil Warren

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

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

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Paper provided by ATAX, University of New South Wales in its series Taxation with number Discussion Paper #10.

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Length: 19 pages
Date of creation: 01 Sep 2002
Date of revision:
Handle: RePEc:nsw:discus:10
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