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Fiscal Equalisation: Principles and an Application to the European Union

Bernd Hayo () and Matthias Wrede ()

Public Economics from EconWPA

Abstract: The paper derives a normative model for partial fiscal equalisation based on a number of axioms and makes special allowance for the existence of a specific fiscal need in the jurisdictions. A simple version of this idealised equalisation scheme relates net contri-butions to the equalisation funds to deviations of a jurisdiction's gross income from average gross income and a jurisdiction's specific needs from average specific needs. The theoretical model is then empirically tested for the case of the European Union using data from 1986-97. It is found that most restrictions of the model appear to hold, in particular, relatively richer countries contribute more and those with greater fiscal needs, approximated by the importance of the agricultural sector, pay less. However, in the EU, an adjustment of net payments to changes in the actual importance of the spe-cific fiscal need for a country is lacking.

Keywords: Fiscal Equalisation; European Union (search for similar items in EconPapers)
JEL-codes: H77 H87 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pbe
Date: 2002-01-10
Note: Type of Document -
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http://128.118.178.162/eps/pe/papers/0201/0201001.pdf (application/pdf)

Related works:
Journal Article: Fiscal equalisation: Principles and an application to the European Union (2004) Downloads
Working Paper: Fiscal Equalisation: Principles and an Application to the European Union (2003) Downloads
Working Paper: Fiscal equalisation: Principles and an application to the European Union (2001) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwppe:0201001

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