IDEAS home Printed from https://ideas.repec.org/p/tor/tecipa/msmart-96-03.html
   My bibliography  Save this paper

Taxation incentives and deadweight loss in a system of intergovernmental transfers

Author

Listed:
  • Michael Smart

Abstract

Intergovernmental transfer programs in many federal systems, including Canada, attempt to equalize differences in subnational jurisdictions' tax capacities on the basis of the so-called representative tax system (RTS). It is shown that RTS equalization grants effectively compensate local governments for a portion of the deadweight loss associated with taxes, and consequently the grants may tend to increase the distortionary tax rates chosen by local governments. This may be the case even when equalization is confined to tax bases which are themselves non-distortionary, such as the taxation of pure economic rents. These insights are then applied to a discussion of the design of an optimal revenue-sharing scheme for a federation, given the implementation constraints facing the central government.

Suggested Citation

  • Michael Smart, 1996. "Taxation incentives and deadweight loss in a system of intergovernmental transfers," Working Papers msmart-96-03, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:msmart-96-03
    as

    Download full text from publisher

    File URL: https://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-MSMART-96-03.ps
    File Function: MainText
    Download Restriction: no

    File URL: https://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-MSMART-96-03.pdf
    File Function: MainText
    Download Restriction: no

    References listed on IDEAS

    as
    1. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-633, November.
    2. 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.
    3. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, pages 133-172.
    4. Flatters, Frank & Henderson, Vernon & Mieszkowski, Peter, 1974. "Public goods, efficiency, and regional fiscal equalization," Journal of Public Economics, Elsevier, pages 99-112.
    5. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, pages 757-774.
    6. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    7. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, pages 133-172.
    8. Thomas J. Courchene & David A. Beavis, 1973. "Federal-Provincial Tax Equalization: An Evaluation," Canadian Journal of Economics, Canadian Economics Association, vol. 6(4), pages 483-502, November.
    9. Boadway, Robin, 1982. "On the Method of Taxation and the Provision of Local Public Goods: Comment," American Economic Review, American Economic Association, pages 846-851.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Santiago Lago Peñas, 2002. "Nivelación interterritorial e ineficiencia de las decisiones presupuestarias: reflexiones para el caso español," Hacienda Pública Española, IEF, pages 79-100.
    2. Alejandro Esteller-Moré & Albert Solé-Ollé, 2002. "Tax Setting in a Federal System: The Case of Personal Income Taxation in Canada," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 235-257.
    3. Thierry Madiès & Sonia Paty & Yvon Rocaboy, 2005. "Externalités fiscales horizontales et verticales. Où en est la théorie du fédéralisme financier ?," Revue d'économie politique, Dalloz, pages 17-63.
    4. Ann Cavlovic & Harriet Jackson, "undated". "Bother thy neighbour? Intergovernmental Tax Interactions in the Canadian Federation," Working Papers-Department of Finance Canada 2003-09, Department of Finance Canada.
    5. Sotiris Karkalakos & Christos Kotsogiannis, 2007. "A spatial analysis of provincial corporate income tax responses: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 40(3), pages 782-811, August.
    6. Muhammad Sabir, 2001. "Dynamic Consequences of the 1997 NFC Award: Provincial Social Sector Expenditures," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 967-984.
    7. S. Bucovetsky, 1997. "Insurance and Incentive Effects of Transfers among Regions: Equity and Efficiency," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 463-483, November.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tor:tecipa:msmart-96-03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.