Fiscal Equalization, Government Expenditures and Endogenous Growth

Philippe Cyrenne and Manish Pandey

Departmental Working Papers from The University of Winnipeg, Department of Economics

Abstract: This paper analyzes the effect of a fiscal equalization system on the composition of government expenditures of subnational governments. We incorporate vertical equalization transfers with optimal choice of the composition of government expenditures in an endogenous growth model and show that such transfers reduce the incentives of recipient subnational governments to undertake productive expenditures. Using data for Canadian provinces, we find evidence that, after controlling for a number of determinants of government expenditures, the ratio of productive expenditures to total government expenditures was lower in equalization-receiving than non-receiving provinces.

JEL-codes: E62 H7 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2013-11
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (3)

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Journal Article: Fiscal equalization, government expenditures and endogenous growth (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:win:winwop:2013-03

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