Fiscal equalization and regions' (un)willingness-to-tax: Evidence from Germany

Timm Bönke, Beate Jochimsen and Carsten Schröder

No 2011-06, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: Under cooperative federalism, when an identical tax tariff applies to all regions of a federation, usually redistribution rules are implemented to smooth fiscal differences. The administration of tax collection, however, is sometimes delegated to the regional level, leaving the regional administrations some discretion concerning the auditing of tax returns. Building on a stylized model, we show that under such conditions granted discretionary tax deductions at the level of tax units is positively related to state-specific marginal rates of loss (MRL), i.e., the fraction of an additional tax Euro raised in a region that the fiscal-equalization system redistributes to other jurisdictions. We empirically test the model's presumption using administrative income-tax micro data from Germany. Regression estimates comply with the implications of our model.

Keywords: Fiscal federalism; rate of loss; income tax returns (search for similar items in EconPapers)
JEL-codes: C21 H21 H77 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-acc, nep-geo, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:201106

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