EconPapers    
Economics at your fingertips  
 

Fiscal Federalism, Taxation and Grants

Martin Gonzalez-Eiras () and Dirk Niepelt ()

No 16.05, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: We propose a theory of tax centralization and inter governmental grants in politico-economic equilibrium. The cost of taxation differs across levels of government because voters internalize general equilibrium effects at the central but not at the local level. This renders the degree of tax centralization and the tax burden determinate even if none of the traditional, expenditure-related motives for centralization considered in the fiscal federalism literature is present. If central and local spending are complements and the trade-off between the cost of taxation and the benefit of spending is perceived differently across levels of government, inter governmental grants become relevant. Calibrated to U.S. data, our model helps to explain the introduction of federal grants at the time of the New Deal, and their increase up to the turn of the twenty-first century. Grants are predicted to increase to approximately 5.5% of GDP by 2060.

Pages: 33 pages
Date: 2016-08
New Economics Papers: this item is included in nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.szgerzensee.ch/fileadmin/Dateien_Anwend ... g_papers/wp-1605.pdf Full text (application/pdf)
None

Related works:
Working Paper: Fiscal Federalism, Taxation and Grants (2016) Downloads
Working Paper: Fiscal Federalism, Taxation and Grants (2016) Downloads
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:szg:worpap:1605

Ordering information: This working paper can be ordered from
Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee

The price is Free.

Access Statistics for this paper

More papers in Working Papers from Swiss National Bank, Study Center Gerzensee Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee.
Bibliographic data for series maintained by library ().

 
Page updated 2020-07-14
Handle: RePEc:szg:worpap:1605