IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v22y2015i3p376-400.html
   My bibliography  Save this article

A structural approach for analyzing fiscal equalization

Author

Listed:
  • Audun Langørgen

Abstract

Many countries apply cost equalization and/or fiscal capacity equalization formulas to enable subnational governments to provide comparable service standards at comparable tax rates. This paper demonstrates how measures of expenditure needs and fiscal capacity can be derived from a structural model of local government spending and taxing behavior. The structural parameters are shown to provide the information required to implement equalization defined as a balance between the principles of horizontal equity and local autonomy. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Audun Langørgen, 2015. "A structural approach for analyzing fiscal equalization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 376-400, June.
  • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:3:p:376-400
    DOI: 10.1007/s10797-014-9317-0
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10797-014-9317-0
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s10797-014-9317-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lluch, Constantino, 1973. "The extended linear expenditure system," European Economic Review, Elsevier, vol. 4(1), pages 21-32, April.
    2. Roy Bahl & Sally Wallace, 2007. "Intergovernmental Transfers: The Vertical Sharing Dimension," Springer Books, in: Jorge Martinez-Vazquez & Bob Searle (ed.), Fiscal Equalization, chapter 0, pages 205-249, Springer.
    3. Christos Kotsogiannis, 2010. "Federal tax competition and the efficiency consequences for local taxation of revenue equalization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(1), pages 1-14, February.
    4. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 3-30, Spring.
    5. Angus Deaton, 2010. "Instruments, Randomization, and Learning about Development," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 424-455, June.
    6. Aaberge, Rolf & Bhuller, Manudeep & Langørgen, Audun & Mogstad, Magne, 2010. "The distributional impact of public services when needs differ," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 549-562, October.
    7. Richard Bird & François Vaillancourt, 2007. "Expenditure-Based Equalization Transfers," Springer Books, in: Jorge Martinez-Vazquez & Bob Searle (ed.), Fiscal Equalization, chapter 0, pages 259-289, Springer.
    8. Kenneth I. Wolpin & Mark R. Rosenzweig, 2000. "Natural "Natural Experiments" in Economics," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 827-874, December.
    9. Aaberge, Rolf & Langørgen, Audun & Mogstad, Magne & Østensen, Marit, 2008. "The Impact of Local Public Services and Geographical Cost of Living Differences on Poverty Estimates," IZA Discussion Papers 3686, Institute of Labor Economics (IZA).
    10. Duncombe, William & Yinger, John, 2005. "How much more does a disadvantaged student cost?," Economics of Education Review, Elsevier, vol. 24(5), pages 513-532, October.
    11. Downes, Thomas A. & Pogue, Thomas F., 1994. "Adjusting School Aid Formulas for the Higher Cost of Educating Disadvantaged Students," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(1), pages 89-110, March.
    12. Aaberge, Rolf & Langorgen, Audun, 2003. "Fiscal and Spending Behavior of Local Governments: Identification of Price Effects When Prices Are Not Observed," Public Choice, Springer, vol. 117(1-2), pages 125-161, October.
    13. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects, and Econometric Policy Evaluation," Econometrica, Econometric Society, vol. 73(3), pages 669-738, May.
    14. Anwar Shah, 1996. "A Fiscal Need Approach to Equalization," Canadian Public Policy, University of Toronto Press, vol. 22(2), pages 99-115, June.
    15. Sam Bucovetsky & Michael Smart, 2006. "The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(1), pages 119-144, January.
    16. Audun Langørgen, 2011. "Targeting public services through the unequal treatment of unequals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(2), pages 193-213, April.
    17. Robin Boadway, 2004. "The Theory and Practice of Equalization," CESifo Economic Studies, CESifo Group, vol. 50(1), pages 211-254.
    18. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-633, November.
    19. Mieszkowski, Peter & Musgrave, Richard A., 1999. "Federalism, Grants, and Fiscal Equalization," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 239-260, June.
    20. Downes, Thomas A. & Pogue, Thomas F., 1994. "Adjusting School Aid Formulas for the Higher Cost of Educating Disadvantaged Students," National Tax Journal, National Tax Association, vol. 47(1), pages 89-110, March.
    21. Andrew Reschovsky & Jennifer Imazeki, 2003. "Let No Child Be Left Behind: Determining the Cost of Improving Student Performance," Public Finance Review, , vol. 31(3), pages 263-290, May.
    22. Albouy, David, 2012. "Evaluating the efficiency and equity of federal fiscal equalization," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 824-839.
    23. repec:pri:rpdevs:deaton_instruments_randomization_learning_all_04april_2010 is not listed on IDEAS
    24. Raj Chetty, 2009. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 451-488, May.
    25. Allers, Maarten A., 2012. "Yardstick competition, fiscal disparities, and equalization," Economics Letters, Elsevier, vol. 117(1), pages 4-6.
    26. Yinger, John, 1986. "On fiscal disparities across cities," Journal of Urban Economics, Elsevier, vol. 19(3), pages 316-337, May.
    27. Richard Jackman & John Papadachi, 1981. "Local authority education expenditure in England and Wales: Why standards differ and the impact of government grants," Public Choice, Springer, vol. 36(3), pages 425-439, January.
    28. Gerald E. Auten, 1974. "The Distribution of Revenue-Sharing Funds and Local Public Expenditure Needs," Public Finance Review, , vol. 2(3), pages 352-375, July.
    29. Maarten A. Allers & J. Paul Elhorst, 2011. "A Simultaneous Equations Model Of Fiscal Policy Interactions," Journal of Regional Science, Wiley Blackwell, vol. 51(2), pages 271-291, May.
    30. Le Grand, Julian, 1975. "Fiscal Equity and Central Government Grants to Local Authorities," Economic Journal, Royal Economic Society, vol. 85(339), pages 531-547, September.
    31. Mieszkowski, Peter & Musgrave, Richard A., 1999. "Federalism, Grants, and Fiscal Equalization," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 239-60, June.
    32. Alexander Cappelen & Bertil Tungodden, 2007. "Local autonomy and interregional equality," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 28(3), pages 443-460, April.
    33. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
    34. Bradbury, Katharine & Zhao, Bo, 2009. "Measuring Non–School Fiscal Disparities Among Municipalities," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(1), pages 25-56, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gangqiang Yang & Yuxi Ma & Yongyu Xue & Xia Meng, 2019. "Does the Development of a High-Speed Railway Improve the Equalization of Medical and Health Services? Evidence from China," IJERPH, MDPI, vol. 16(9), pages 1-21, May.
    2. Héctor Cardozo, 2021. "An estimation of expenditure needs for Argentinian provinces: A structural modeling approach," Ensayos de Política Económica, Departamento de Investigación Francisco Valsecchi, Facultad de Ciencias Económicas, Pontificia Universidad Católica Argentina., vol. 3(3), pages 41-75, Octubre.
    3. Li, Bin & Li, Tuo & Yu, Man & Chen, Bin, 2017. "Can equalization of public services narrow the regional disparities in China? A spatial econometrics approach," China Economic Review, Elsevier, vol. 44(C), pages 67-78.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robin Boadway & Katherine Cuff, 2017. "The impressive contribution of Canadian economists to fiscal federalism theory and policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1348-1380, December.
    2. Albouy, David, 2012. "Evaluating the efficiency and equity of federal fiscal equalization," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 824-839.
    3. Tae Ho Eom & William Duncombe & Phuong Nguyen-Hoang & John Yinger, 2014. "The Unintended Consequences of Property Tax Relief: New York’s STAR Program," Education Finance and Policy, MIT Press, vol. 9(4), pages 446-480, October.
    4. Jorge Martinez-Vazquez & Cristian Sepulveda, 2012. "Toward a More General Theory of Revenue Assignments," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1231, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    5. Jorge Martinez-Vazquez & Cristian Sepulveda, 2020. "A Theoretical Rationale for the Fiscal-Gap Model of Equalization Transfers," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 76(1), pages 1-28.
    6. William Duncombe & John Yinger, 2011. "Making do: state constraints and local responses in California’s education finance system," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(3), pages 337-368, June.
    7. Ana B. Ania & Andreas Wagener, 2021. "Laboratory federalism with public funds sharing," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1047-1065, July.
    8. Bev Dahlby & Kevin Milligan, 2017. "From theory to practice: Canadian economists’ contributions to public finance," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1324-1347, December.
    9. Toolsema-Veldman, Linda & Allers, M.A., 2012. "Welfare financing," Research Report 12004-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    10. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
    11. Thoresen, Thor O. & Vattø, Trine E., 2015. "Validation of the discrete choice labor supply model by methods of the new tax responsiveness literature," Labour Economics, Elsevier, vol. 37(C), pages 38-53.
    12. Linda Toolsema & Maarten Allers, 2014. "Welfare Financing: Grant Allocation and Efficiency," De Economist, Springer, vol. 162(2), pages 147-166, June.
    13. Jiaming Mao & Zhesheng Zheng, 2020. "Structural Regularization," Papers 2004.12601, arXiv.org, revised Jun 2020.
    14. Marx, Ive & Nolan, Brian & Olivera, Javier, 2014. "The Welfare State and Anti-Poverty Policy in Rich Countries," IZA Discussion Papers 8154, Institute of Labor Economics (IZA).
    15. Buerger, Christian & Bifulco, Robert, 2019. "The effect of charter schools on districts’ student composition, costs, and efficiency: The case of New York state," Economics of Education Review, Elsevier, vol. 69(C), pages 61-72.
    16. Patrick Kline & Christopher R. Walters, 2016. "Evaluating Public Programs with Close Substitutes: The Case of HeadStart," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1795-1848.
    17. Héctor Cardozo, 2021. "An estimation of expenditure needs for Argentinian provinces: A structural modeling approach," Ensayos de Política Económica, Departamento de Investigación Francisco Valsecchi, Facultad de Ciencias Económicas, Pontificia Universidad Católica Argentina., vol. 3(3), pages 41-75, Octubre.
    18. repec:dgr:rugsom:12004-eef is not listed on IDEAS
    19. Vermeulen, W. & Allers, Maarten, 2014. "Fiscal equalization, capitalization and the flypaper effect," Research Report 14023-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    20. Till Gross, 2021. "Dynamic Optimal Fiscal Policy in a Transfer Union," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 194-238, October.
    21. Biørn, Erik, 2017. "Identification, Instruments, Omitted Variables, and Rudimentary Models: Fallacies in the ‘Experimental Approach’ to Econometrics," Memorandum 13/2017, Oslo University, Department of Economics.

    More about this item

    Keywords

    Fiscal equalization; Horizontal equity; Local autonomy; Expenditure needs; Fiscal capacity; Structural modeling; H71; H72;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:22:y:2015:i:3:p:376-400. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.