Fiscal equalization, government expenditures and endogenous growth

Philippe Cyrenne and Manish Pandey

International Tax and Public Finance, 2015, vol. 22, issue 2, 329 pages

Abstract: This paper analyzes the effect of a fiscal equalization system on the composition of government expenditures of subnational governments. We incorporate vertical equalization transfers with optimal choice of the composition of government expenditures in an endogenous growth model and show that such transfers reduce the incentives of recipient subnational governments to undertake productive expenditures. Using data for Canadian provinces, we find evidence that, after controlling for a number of determinants of government expenditures, the ratio of productive expenditures to total government expenditures was lower in equalization-receiving than non-receiving provinces. Copyright Springer Science+Business Media New York 2015

Keywords: Fiscal equalization; Government expenditures; Endogenous growth; H7; E62 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:22:y:2015:i:2:p:311-329

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DOI: 10.1007/s10797-014-9310-7

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