Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25971
Authors: 
Smart, Michael
Year of Publication: 
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

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