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Title:Fiscal Equalisation and the Soft Budget Constraint PDF Logo
Authors:Plachta, Robert C.
Issue Date:2008
Series/Report no.:Finanzwissenschaftliche Diskussionsbeiträge / Finanzwissenschaftliches Forschungsinstitut an der Universität zu Köln 08-8
Abstract:This paper assesses the interactions of horizontal fiscal equalisation schemes with debt policy by sovereign regional governments. Local public goods are either financed by debt or taxation. A horizontal equalisation scheme eleviates regional public revenue disparities under horizontal and vertical tax competition. We show that fiscal equalisation schemes have no impact on the optimal central government grant whereas they can either soften or harden the regional budget constraint depending on the specific formulae. Revenue equalisation softens the budget constraint whereas tax base equalisation hardens the budget constraint of poor states.
Subjects:Fiscal federalism
public debt
soft budget constraint
fiscal equalisation
tax competition
JEL:H7
E62
Document Type:Working Paper
Appears in Collections:FiFo Discussion Papers, Finanzwissenschaftliches Forschungsinstitut, Universität Köln

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