Fiscal equalisation: Principles and an application to the European Union

Bernd Hayo and Matthias Wrede

No 38, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: The paper derives a normative model for partial fiscal equalisation based on a number of axioms and makes special allowance for the existence of a specific fiscal need in the jurisdictions. A simple version of this idealised equalisation scheme relates net contributions to the equalisation funds to deviations of a jurisdiction's gross income from average gross income and a jurisdiction's specific needs from average specific needs. The theoretical model is then empirically tested for the case of the European Union using data from 1986-97. It is found that most restrictions of the model appear to hold, in particular, relatively richer countries contribute more and those with greater fiscal needs, approximated by the importance of the agricultural sector, pay less. However, in the EU, an adjustment of net payments to changes in the actual importance of the specific fiscal need for a country is lacking.

Keywords: Fiscal Equalisation; European Union (search for similar items in EconPapers)
JEL-codes: H77 H87 (search for similar items in EconPapers)
Date: 2001
References: View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Related works:
Journal Article: Fiscal equalisation: Principles and an application to the European Union (2004)
Working Paper: Fiscal Equalisation: Principles and an Application to the European Union (2003)
Working Paper: Fiscal Equalisation: Principles and an Application to the European Union (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:38

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