Fiscal Equalization and Yardstick Competition

26 Pages Posted: 20 Dec 2006

See all articles by Christos Kotsogiannis

Christos Kotsogiannis

University of Exeter

Robert Schwager

Center for European Economic Research (ZEW); University of Magdeburg

Date Written: December 2006

Abstract

A multi-jurisdictional system is thought to improve, through yardstick competition, accountability. At the same time equalization programs, a common feature of multi-jurisdictional systems, are thought to be a prerequisite for both efficiency of the internal market and the equity objective of the equal treatment of equals. This paper shows that such programs, by reducing the information context of comparisons across jurisdictions, introduce perverse fiscal incentives and thus reduce accountability. The consequence of this is that equilibrium rent-taking increases with the intensity of equalization transfers.

Keywords: equalization transfer programs, fiscal capacity, rent-seeking, fiscal federalism

JEL Classification: D72, H77

Suggested Citation

Kotsogiannis, Christos and Schwager, Robert, Fiscal Equalization and Yardstick Competition (December 2006). CESifo Working Paper Series No. 1865. Available at SSRN: https://ssrn.com/abstract=952634

Christos Kotsogiannis

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

Robert Schwager (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
00 49 621 1235160 (Phone)
00 49 621 1235215 (Fax)

University of Magdeburg

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

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