Efficient Revenue Sharing and Upper Level Governments: Theory and Application to Germany


Buettner, Thiess ; Hauptmeier, Sebastian ; Schwager, Robert


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URL: http://ub-madoc.bib.uni-mannheim.de/1230
URN: urn:nbn:de:bsz:180-madoc-12309
Document Type: Working paper
Year of publication: 2006
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: H71 H77 ,
Subject headings (SWD): Deutschland , Finanzausgleich , Steuer
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.
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Buettner, Thiess ; Hauptmeier, Sebastian ; Schwager, Robert (2006) Efficient Revenue Sharing and Upper Level Governments: Theory and Application to Germany. Open Access [Working paper]
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