On states' behavior with equalization grants Diego Martínez López
By: Martínez López, Diego
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Material type: 
ArticlePublisher: 2005Subject(s): FEDERALISMO FISCAL | BIENES PUBLICOSOnline resources: Click here to access online
In:
Hacienda pública española n. 174, (3/2005), p. 43-54Summary: This paper discusses how state government's behavior is affected when the so-called Representative Tax System (RTS) equalization scheme is implemented. In particular, we study the changes in the marginal cost of public funds (MCPF), and in the first order conditions for the optimal provision of public imputs. Following Smart (1998), those equalization transfers might create a price effect that induces the subnational governments to raise taxes. However, this result has to be qualified under certain assumptions. Also we find that there is anambiguous relationship between the degree of fiscal equalization and the marginal cost of providing the public input and the level of taxation. in a sense, it is not clear that more redistribution necessarily leads to more inefficiency caused by higher taxes.
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| IEF | HPE/2005/174-3 (Browse shelf) | Available | HPE/2005/174-3 |
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This paper discusses how state government's behavior is affected when the so-called Representative Tax System (RTS) equalization scheme is implemented. In particular, we study the changes in the marginal cost of public funds (MCPF), and in the first order conditions for the optimal provision of public imputs. Following Smart (1998), those equalization transfers might create a price effect that induces the subnational governments to raise taxes. However, this result has to be qualified under certain assumptions. Also we find that there is anambiguous relationship between the degree of fiscal equalization and the marginal cost of providing the public input and the level of taxation. in a sense, it is not clear that more redistribution necessarily leads to more inefficiency caused by higher taxes.
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