Bulletin n. 1/2006
May 2006
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
  • BUCOVETSKY, SMART
    The efficiency consequences of local revenue equalization: tax competition and tax distortions
    in Journal of Public Economic Theory , Vol. 8 Issue 1 ,  2006
    This paper shows how a popular system of federal revenue equalization grants can limit tax competition among subnational governments, correct fiscal externalities, and increase government spending. Remarkably, an equalization grant can implement efficient policy choices by regional governments, even in the presence of differences in regional tax capacity, tastes for public spending, and population. If aggregate tax bases are elastic, however, equalization leads to excessive taxation. Efficiency can be achieved by a modified formula that equalizes a fraction of local revenue deficiencies equal to the fraction of taxes that are shifted backward to factor suppliers
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