Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/288673 
Year of Publication: 
2020
Citation: 
[Journal:] International Tax and Public Finance [ISSN:] 1573-6970 [Volume:] 28 [Issue:] 1 [Publisher:] Springer US [Place:] New York, NY [Year:] 2020 [Pages:] 90-112
Publisher: 
Springer US, New York, NY
Abstract: 
This paper exploits the devolution of taxing powers in the German federation to study the effects of fiscal equalization on subnational governments’ tax policy. Based on an analysis of the system of fiscal equalization transfers, we argue that the redistribution of revenues provides incentives for states to raise rather than to lower their tax rates. The empirical analysis exploits differences in fiscal redistribution among the states and over time. Using a comprehensive simulation model, the paper computes the tax-policy incentives faced by each state over the years and explores their empirical effects on tax policy. The results support a robust and strong incentive effect that works through the tax-base. When facing full equalization, a state is predicted to set the rate of the real estate transfer tax at about 1.3 percentage points higher than without. Our analysis also shows that the incentive to raise tax rates has proliferated because individual states’ decisions to raise their tax rates have intensified fiscal redistribution over time.
Subjects: 
Fiscal equalization
Tax autonomy
Real estate transfer tax
Tax capacity
Standard tax rate
JEL: 
H20
H26
R38
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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