Why are tax revenues of local governments so low?

Paulo Ernesto M. Gomes and M. Christian Lehmann

Applied Economics Letters, 2016, vol. 23, issue 10, 740-742

Abstract: Using a unique data set on federal grants and tax revenues of more than 5000 Brazilian cities, we find that the federal government imposes an implicit tax of almost 10% on city governments’ tax revenues: for every dollar that a city collects from its residents, the federal government withdraws grants worth 9 cents from the city. Our findings suggest that local government tax revenues are low not because federal grants crowd out tax revenues, but because tax revenues crowd out federal grants.

Date: 2016
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DOI: 10.1080/13504851.2015.1105912

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