Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/24205
Year of Publication: 
2006
Series/Report no.: 
ZEW Discussion Papers No. 06-013
Publisher: 
Zentrum für Europäische Wirtschaftsforschung (ZEW), Mannheim
Abstract: 
Recent literature has emphasized that redistributive grant systems may tend to internalize fiscal externalities arising from tax competition. This paper further explores the conditions under which local grant systems enforced by the state government will enhance efficiency. A system of redistributive grants among governments is introduced into a standard model of tax competition. This basic model is then extended in order to allow for variations in the government objectives at the state level. A subsequent empirical analysis of local tax policy exploits the experience with local fiscal revenue sharing in Germany. The results suggest that attempts of state level governments to extract fiscal resources from the local revenue sharing system exert an upward pressure on tax rates.
Subjects: 
Fiscal Equalization
Tax Competition Fiscal Federalism
Germany
JEL: 
H77
H71
Document Type: 
Working Paper

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