Evaluating the efficiency and equity of federal fiscal equalization

David Albouy

Journal of Public Economics, 2012, vol. 96, issue 9-10, 824-839

Abstract: Theoretically, federal transfers that make household location decisions efficient should ignore local cost differences, subsidize positive externalities, and offset differences in federal-tax payments and local taxes levied on non-residents, but not local tax revenues from residents. Transfers that redistribute resources equitably across regions will likely target areas with individuals of low earnings potential or low real incomes. Applying these criteria empirically, Canadian equalization policy appears neither efficient nor equitable, but exacerbates pre-existing inefficiencies and underfunds minorities. Locational inefficiencies cost Canada 0.41% of income annually and cause over-funded provinces to have populations of 30% beyond their efficient long-run levels.

Keywords: Fiscal equalization; Federal taxation; Source-based and residence-based taxes; Horizontal equity; Cost-of-living; Compensating wage differentials (search for similar items in EconPapers)
JEL-codes: H24 H5 H77 J61 R1 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (57)

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Related works:
Working Paper: Evaluating the Efficiency and Equity of Federal Fiscal Equalization (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:96:y:2012:i:9:p:824-839

DOI: 10.1016/j.jpubeco.2012.05.015

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