Fiscal equalization and the tax structure

Fédéric Holm-Hadulla

Regional Science and Urban Economics, 2020, vol. 81, issue C

Abstract: This paper studies the impact of redistributive fiscal equalization transfers on the choice between a distortionary capital tax and a non-distortionary land tax at the local layer of government. In a standard tax competition model, the paper shows that this impact is ambiguous in that, depending on the motives driving local policy choices, fiscal equalization may either induce a more or a less distortionary tax structure. Using a natural experiment from German municipal finance, the paper provides empirical evidence in support of the latter prediction, i.e. fiscal equalization tilts the tax structure towards less distortionary tax instruments.

Keywords: Fiscal equalization; Local tax structure; Natural experiment; Difference-in-differences (search for similar items in EconPapers)
JEL-codes: H23 H25 H71 H77 R51 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Fiscal equalization and the tax structure (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:81:y:2020:i:c:s016604621930119x

DOI: 10.1016/j.regsciurbeco.2020.103519

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