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Title:Raising taxes through equalization PDF Logo
Authors:Smart, Michael
Issue Date:2007
Series/Report no.:CESifo working paper 1926
Abstract:A simple theory suggests that a common form of federal horizontal equalization grants should cause subnational governments to levy higher tax rates, distorting local tax bases and so increasing federal transfers. To test this, I examine Canadian provincial tax policies in the 1972-2002 period. Consistent with the theory, provinces respond to expansions of equalization transfers by increasing their own tax rates. I estimate that on average tax rates in grant-receiving provinces were substantially and significantly higher as a consequence of the transfer formula.
JEL:H21
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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