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The Bavarian Municipal Fiscal Equalization Scheme: Emphasis on Equity Rather than Efficiency

Isabella Lehmann and Matthias Wrede ()

FinanzArchiv: Public Finance Analysis, 2019, vol. 75, issue 2, 127-151

Abstract: Employing the approach of Albouy (2012), this paper evaluates the efficiency and equity of the municipal fiscal equalization scheme in the federal state of Bavaria in Germany. Calculating a measure reflecting the internalization of fiscal and real externalities by state grants, we conduct a regression analysis on variables describing efficiency and equity criteria. Because the fiscal equalization scheme redistributes revenues toward regions with low realized incomes and a larger population share of low-productivity residents, the scheme satisfies certain equity criteria. However, the fiscal equalization scheme likely does not internalize local public-good externalities and therefore hampers spatial efficiency.

Keywords: municipal fiscal equalization scheme; spatial efficiency; equity; source-based and residence-based taxes; local public expenditure (search for similar items in EconPapers)
JEL-codes: H7 J61 R1 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1628/fa-2019-0004

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