Template-type: ReDIF-Paper 1.0
Author-Name: Jeff Petchey 
Author-Email:petcheyj@cbs.curtin.edu.au
Author-Name: Sophia Levtchenkova 
Author-Email:levtches@cbs.curtin.edu.au
Title: Fiscal Capacity Equalization and Economic Efficiency 
Abstract: Fiscal capacity equalisation, at least of the type implemented in Australia, is shown to link regions together
 through a grant distribution formula that creates an incentive for regions to act strategically in order to influence
 the size of their grant.  This behaviour distorts the provision of local public goods away from optimal
 levels of provision by changing regional perceptions of the marginal benefit from local public good provision.
  In addition, the inter-regional transfer of income that occurs with equalisation leads to inefficiency in the spatial
 allocation of mobile factors of production.  As a result, we conclude that equalisation may create economic inefficiency,
 and lead to a lower level of social welfare. 
Keywords: fiscal equalisation, revenue needs, expenditure needs, local public goods, Nash equilibrium, labour mobility, 
          fiscal externalities, economic rents.     
Length: 27 pages
Creation-Date: 2004-11-01
File-URL:http://icepp.gsu.edu/files/2015/03/ispwp0415.pdf
File-Format:Application/PDF
Handle: RePEc:ays:ispwps:paper0415