Capital Equalization and the Australian States

Jeffrey Petchey (), Garry Macdonald Paul Koshy and Perry Shapiro

The Economic Record, 2000, vol. 76, issue 232, 32-44

Abstract: The Australian Grants Commission has recently considered ways to take account of differences in capital costs across States within the existing fiscal equalization formula. Here we develop a theoretical methodology for estimating differences in the costs of capital faced by the States in the General Government Sector. This methodology is used to generate preliminary estimates of State capital cost ‘disabilities’ from 1962–63 to 1995–96. Finally, we suggest how the methodology and the estimates of capital cost disabilities might be integrated into the Commission's formula to produce a grant distribution which reflects different costs of capital across States.

Date: 2000
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