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A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany

Christian Baretti (), Bernd Huber () and Karl Lichtblau

International Tax and Public Finance, 2002, vol. 9, issue 6, 631-649

Abstract: Several recent studies suggest that equalizing transfers in a federal system may distort the tax policy decisions of states. We study this issue for the German federal fiscal system. In a simple theoretical model, we first identify a substitution effect and an income effect of equalizing transfers. Our main hypothesis is that both effects should tend to reduce tax revenue of German states. We perform various empirical tests which confirm this hypothesis. Copyright Kluwer Academic Publishers 2002

Keywords: fiscal federalism; intergovernmental transfers; interstate equalization (search for similar items in EconPapers)
Date: 2002
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