The Income Equalization System among Municipalities in Norway: Strengths and Implications

Johannes Idsø, Torbjørn Årethun and Bharat P. Bhatta
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Johannes Idsø: Institute of Business and Administration, Western Norway University of Applied Sciences, 6856 Sogndal, Norway
Torbjørn Årethun: Institute of Business and Administration, Western Norway University of Applied Sciences, 6856 Sogndal, Norway
Bharat P. Bhatta: Center for Research and Development, King’s College, Babarmahal, Kathmandu 44600, Nepal

Economies, 2018, vol. 6, issue 2, 1-10

Abstract: Norway is a leading nation pursuing egalitarian public policies. With an aim to smooth out income differences between municipalities and to stabilize individual municipality’s revenue over time, Norway has implemented a scheme called the income equalization system among municipalities. The scheme, which transfers revenue to poor municipalities, helps to maintain similar welfare services in all municipalities. We present and illustrate the model with data from all municipalities in Norway. We also demonstrate how the scheme helps stabilize tax revenue across municipalities over time. Furthermore, we show how the scheme can cause poor municipalities to have reduced incentives to increase their tax revenue.

Keywords: income equalization system; tax revenue of municipalities; efficiency and equality; Norway (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2018
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