@techreport{Koethenbuerger2006post,
abstract = {This paper analyzes whether changes in the timing of equalizing transfers to state governments necessitate an adjustment in federal corrective policy. According to the existing literature (assuming an ex-ante choice of transfers), the corrective grant is equal to the marginal damage/benefit inflicted by externality generation. When the federal government accommodates state finances ex-post, the grant differs in formula from existing prescription. Allocative federal policy corrects state policy incentives twofold. It entails a correction for the distortion in the marginal benefit of state spending (as in earlier literature) and for the distortion in the marginal cost of public funds induced by the ex-post provision of transfers. The required grant rule is generically disproportionate to the equilibrium externality (even with lump-sum taxation). Furthermore, the ex-post provision of transfers is critical for the nature of the equilibrium inefficiency. Equalizing transfers at least partly internalize consumption spill-overs, but simultaneously establishes a new source of inefficiency. As a final result, the existing prescription for allocative federal policy continues to apply if the public good is pure.},
address = {M\"{u}nchen},
author = {Marko Koethenbuerger},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {H7; D62; H3; H1; 330},
language = {eng},
number = {1754},
publisher = {CESifo},
title = {Ex-post redistribution in a federation: implications for corrective policy},
type = {CESifo working paper},
url = {http://hdl.handle.net/10419/25799},
year = {2006}
}
