The project will examine the question of whether and with what design a fiscal equalisation system is suitable for eliminating or decreasing the allocative distortions of tax competition. In the second project phase possible false incentive of the fiscal equalisation system will be identified and integrated into the discussion of designing a more efficient fiscal equalisation. Design recommendations will be given.
The rich experience with fiscal equalisation systems in Germany at the municipal and Länder levels will be empirically evaluated. In addition, the characteristic institutions of the fiscal equalisation systems in Germany will be examined in terms of their efficiency. Through the inclusion of agglomeration effects, the study will examine whether a homogeneous fiscal equalisation with a redistribution from core cities with a large tax base to peripheral regional authorities with a small tax base does not generate false tax-policy incentives due the spatial structure so that a more efficient fiscal equalisation involves a departure from equal treatment of all regional authorities that is suggested in the simple model.
Municipality data, Länder data.
Büttner, Thiess, "The Incentive Effect of Fiscal Equalization on Tax Policy", Journal of Public Economics 90 (3), 2006, p. 477-497.
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