Revenue Equalization Systems in a Federation with Tax Evasion

Lisa Grazzini and Alessandro Petretto ()

FinanzArchiv: Public Finance Analysis, 2012, vol. 68, issue 3, 303-330

Abstract: We analyze how vertical or horizontal fiscal equalization affects the overprovision of local public goods due to vertical fiscal externality, when there is tax evasion. The overspending incentive of regional governments is examined in the cases of fiscal equalization based on pretax earned income and on reported taxable income. We show that a more efficient level of regional public expenditure is associated with a vertical equalization scheme based on a proxy of earned income taken from national-accounts data.

Keywords: fiscal federalism; equalization; marginal cost of public funds; tax evasion (search for similar items in EconPapers)
JEL-codes: H2 H41 H71 H77 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Working Paper: Revenue Equalization Systems in a Federation with Tax Evasion (2011)
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DOI: 10.1628/001522108X653859

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