Efficient Revenue Sharing and Upper Level Governments: Theory and Application to Germany

Thiess Büttner, Sebastian Hauptmeier and Robert Schwager

No 1656, CESifo Working Paper Series from CESifo

Abstract: Recent literature has emphasized that redistributive grant systems may tend to internalize fiscal externalities arising from tax competition. This paper further explores the conditions under which local grant systems enforced by the state government will enhance efficiency. A system of redistributive grants among governments is introduced into a standard model of tax competition. This basic model is then extended in order to allow for variations in the government objectives at the state level. A subsequent empirical analysis of local tax policy exploits the experience with local fiscal revenue sharing in Germany. The results suggest that attempts of state level governments to extract fiscal resources from the local revenue sharing system exert an upward pressure on tax rates.

Keywords: fiscal equalization; tax competition; fiscal federalism; Germany (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Efficient Revenue Sharing and Upper-Level Governments: Theory and Application to Germany (2011)
Working Paper: Efficient Revenue Sharing and Upper Level Governments: Theory and Application to Germany (2006)
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