The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions

Sam Bucovetsky and Michael Smart

No 767, CESifo Working Paper Series from CESifo

Abstract: This paper shows how a popular system of federal revenue equalization grants can limit tax competition among subnational governments, correct fiscal externalities, and increase government spending. Remarkably, an equalization grant can implement efficient policy choices by regional governments, regardless of a wide variety of differences in regional tax capacity, tastes for public spending, and population. Thus, compared to other corrective devices, equalization achieves “robust” implementation. If aggregate tax bases are elastic, however, equalization leads to excessive taxation. Efficiency can be achieved by a modified formula that equalizes a fraction of local revenue deficiencies equal to the fraction of taxes that are shifted backward to factor suppliers.

Keywords: tax competition; intergovernmental grants (search for similar items in EconPapers)
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo_wp767.pdf (application/pdf)

Related works:
Journal Article: The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_767

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().