Bulletin n. 1/2015
June 2015
CONTENTS
  • Section A) The theory and practise of the federal states and multi-level systems of government
  • Section B) Global governance and international organizations
  • Section C) Regional integration processes
  • Section D) Federalism as a political idea
    • López-Laborda Julio, Zabalza Antoni
    Intergovernmental fiscal relations: the efficiency effect of taxes, transfers, and fiscal illusion
    in Environment and Planning C: Government and Policy , Volume 33, Issue 1, February ,  2015 ,  136-162
    The purpose of this paper is to evaluate the efficiency cost of transfers. To this end, we develop a model of individual demand decisions about the provision of a regional public good that encompasses a continuum of tax–transfer scenarios to finance regional public expenditure. We assume that individuals have identical quasi-linear preferences defined over private consumption and the regional public good, that endowment income varies between individuals and regions, and that regions have different predetermined sizes. In an economy-wide resource constrained framework we show that, despite its simplicity, this model is capable of discriminating the efficiency properties of the different scenarios considered, and that the substitution of matching transfers for own-regional taxes always raises the provision of the regional public good, despite the resource-constrained nature of the exercise. The model allows very easily the analysis of equalising transfers, which we show to be distorting only when a matching element is present. We also find that, when transfers have a matching element, ‘fiscal illusion’ increases the elasticity of public good provision with respect to transfers, and suggest a potentially refutable hypothesis to identify the existence of this phenomenon.
    ©2001 - 2020 - Centro Studi sul Federalismo - P. IVA 94067130016