Efficient Revenue Sharing and Upper-Level Governments: Theory and Application to Germany

Thiess Buettner, Robert Schwager and Sebastian Hauptmeier
Authors registered in the RePEc Author Service: Thiess Büttner

Journal of Institutional and Theoretical Economics (JITE), 2011, vol. 167, issue 4, 647-667

Abstract: This paper explores conditions under which revenue-sharing grants will achieve efficiency. We develop a general formulation of the state's decision problem of implementing a set of local policies. A theoretical analysis shows that if the state government pursues own policies and cannot levy lump-sum contributions from local jurisdictions, it will implement revenue-sharing grants that induce local governments to raise local tax rates. A subsequent empirical analysis of local tax policy in Germany suggests that attempts by state-level governments to extract fiscal resources from local governments result in higher tax rates at the local level.

JEL-codes: H71 H77 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Efficient Revenue Sharing and Upper Level Governments: Theory and Application to Germany (2006)
Working Paper: Efficient Revenue Sharing and Upper Level Governments: Theory and Application to Germany (2006)
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