How Significant are Fiscal Interactions in Federations? A Meta-Regression Analysis

45 Pages Posted: 21 Jul 2011  

Joan Costa-Font

London School of Economics & Political Science (LSE)

Filipe De-Albuquerque

London School of Economics & Political Science (LSE)

Hristos Doucouliagos

Deakin University - School of Accounting, Economics and Finance

Date Written: July 21, 2011

Abstract

A large literature examines government fiscal interactions in federations. However, the empirical evidence is scattered and inconclusive, especially with respect to the size of interactions, as well as the institutional and economic determinants underpinning them. This paper uses meta-regression analysis to quantify the size of these inter-jurisdictional fiscal interactions and to explain the heterogeneity in empirical estimates. First, we find significantly stronger interactions among municipalities and nations than among intermediate levels of government. Second, tax interactions are, in general, stronger than expenditure interactions, and horizontal tax interactions appear to be stronger than vertical interactions. Third, both tax competition and yardstick competition are supported by the data, though the former appears to produce stronger interactions. Fourth, capital controls, voter turnout and the design of decentralization all shape fiscal interactions; political competition and fiscal decentralization both increase horizontal tax competition and they decrease vertical tax competition. Finally, much of the variation between estimates can be explained by country heterogeneity, differences in econometric specification and estimation strategies.

Keywords: fiscal interactions, meta-regression, inter-governmental competition, yardstick competition

JEL Classification: H500, H730, R100

Suggested Citation

Costa-Font, Joan and De-Albuquerque, Filipe and Doucouliagos, Hristos, How Significant are Fiscal Interactions in Federations? A Meta-Regression Analysis (July 21, 2011). CESifo Working Paper Series No. 3517. Available at SSRN: https://ssrn.com/abstract=1891839

Joan Costa-Font (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www.lse.ac.uk/people/j.costa-font@lse.ac.uk/

Filipe De-Albuquerque

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Chris (Hristos) Doucouliagos

Deakin University - School of Accounting, Economics and Finance ( email )

Burwood, Victoria 3215
Australia

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