IDEAS home Printed from https://ideas.repec.org/a/bpj/bejeap/v13y2013i1p173-202n11.html
   My bibliography  Save this article

The Incentive Effect of Equalization Grants on Tax Collection

Author

Listed:
  • Rodríguez Javiera Bravo

    (Research Associate at Public Policy Center, Pontificia Universidad CatÓlica de Chil, Alameda Libertador Bernardo O’Higgins 324, 3th floor Santiago 8331150, Chile)

Abstract

Equalization grants that are inversely related to collected revenue increase the marginal cost of collecting because they tax the collection itself. The main finding is evidence for Chilean municipalities that equalization grants have this incentive effect on local revenue. In order to identify this effect, we exploit that today’s collected revenue could affect grants received 2, 3, or 4 years later, as determined by the equalization grant’gs distribution formula. This formula has undergone changes in the 1990-2006 period. We find a negative relationship between the equalization grant’s implicit tax and collected local revenue, and this effect is greater when the period of time between collection and the corresponding distribution of grants is shorter and when the political coalition to which the incumbent mayor belongs has a high likelihood of winning the next election and therefore paying this implicit tax in the coming years.

Suggested Citation

  • Rodríguez Javiera Bravo, 2013. "The Incentive Effect of Equalization Grants on Tax Collection," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 173-202, May.
    • Handle: RePEc:bpj:bejeap:v:13:y:2013:i:1:p:173-202:n:11
    DOI: 10.1515/bejeap-2012-0059
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejeap-2012-0059
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejeap-2012-0059?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 search for a different version of it.

    References listed on IDEAS

    as
    1. Christian Baretti & Bernd Huber & Karl Lichtblau, 2002. "A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(6), pages 631-649, November.
    2. Egger, Peter & Koethenbuerger, Marko & Smart, Michael, 2010. "Do fiscal transfers alleviate business tax competition? Evidence from Germany," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 235-246, April.
    3. Baretti, Christian & Huber, Bernd & Lichtblau, Karl, 2002. "A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany," Munich Reprints in Economics 20129, University of Munich, Department of Economics.
    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. Wei Han, 2020. "The analysis on Chinese e-commerce tax losses based on the perspective of information asymmetry," Electronic Commerce Research, Springer, vol. 20(3), pages 651-677, September.
    2. Oyarzo, Mauricio & Paredes, Dusan, 2019. "Revisiting the link between resource windfalls and subnational crowding out for local mining economies in Chile," Resources Policy, Elsevier, vol. 64(C).

    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. Michael Smart, 2007. "Raising taxes through equalization," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1188-1212, November.
    2. Caterina Liesegang & Marco Runkel, 2009. "Corporate Income Taxation of Multinationals and Fiscal Equalization," CESifo Working Paper Series 2747, CESifo.
    3. Johannes Becker & Michael Kriebel, 2017. "Fiscal equalisation schemes under competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 800-816, September.
    4. Janeba, Eckhard & Todtenhaupt, Maximilian, 2018. "Fiscal competition and public debt," Journal of Public Economics, Elsevier, vol. 168(C), pages 47-61.
    5. Krause, Manuela & Büttner, Thiess, 2017. "Does Fiscal Equalization Lead to Higher Tax Rates? Empirical Evidence from Germany," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168214, Verein für Socialpolitik / German Economic Association.
    6. Salvador Barrios & Diego Martínez-López, 2017. "Fiscal equalization schemes and subcentral government borrowing," Chapters, in: Naoyuki Yoshino & Peter J. Morgan (ed.), Central and Local Government Relations in Asia, chapter 4, pages 130-160, Edward Elgar Publishing.
    7. Miyazaki, Takeshi, 2016. "Intergovernmental Fiscal Transfers and Tax Efforts: Evidence from Japan," MPRA Paper 74337, University Library of Munich, Germany.
    8. Christian Kelders & Marko Koethenbuerger, 2010. "Tax incentives in fiscal federalism: an integrated perspective," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(2), pages 683-703, May.
    9. Burret, Heiko Tobias & Bury, Yannick & Feld, Lars P., 2018. "Grenzabschöpfungsraten im deutschen Finanzausgleich," Working Papers 02/2018, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    10. Caterina Liesegang & Marco Runkel, 2018. "Tax competition and fiscal equalization under corporate income taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 311-324, April.
    11. Koethenbuerger, Marko, 2011. "How do local governments decide on public policy in fiscal federalism? Tax vs. expenditure optimization," Journal of Public Economics, Elsevier, vol. 95(11), pages 1516-1522.
    12. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2014. "Mehr Vertrauen in Marktprozesse. Jahresgutachten 2014/15 [More confidence in market processes. Annual Report 2014/15]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201415, February.
    13. Peter Egger & Marko Koethenbuerger & Michael Smart, 2010. "Electoral rules and incentive effects of fiscal transfers: evidence from Germany," Working Papers 2010/44, Institut d'Economia de Barcelona (IEB).
    14. Timm Bönke & Beate Jochimsen & Carsten Schröder, 2013. "Fiscal Federalism and Tax Administration: Evidence from Germany," Discussion Papers of DIW Berlin 1307, DIW Berlin, German Institute for Economic Research.
    15. Yannick Bury & Lars P. Feld & Heiko T. Burret, 2024. "Skimming the achieved? Quantifying the fiscal incentives of the German fiscal equalization scheme and its reforms since 1970," Economics of Governance, Springer, vol. 25(3), pages 291-334, September.
    16. Yongzheng Liu, 2014. "Does competition for capital discipline governments? The role of fiscal equalization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 345-374, June.
    17. Bönke, Timm & Jochimsen, Beate & Schröder, Carsten, 2011. "Fiscal equalization and regions' (un)willingness-to-tax: Evidence from Germany," Economics Working Papers 2011-06, Christian-Albrechts-University of Kiel, Department of Economics.
    18. Sorens, Jason, 2016. "Vertical Fiscal Gaps and Economic Performance: A Theoretical Review and an Empirical Meta-analysis," Working Papers 06856, George Mason University, Mercatus Center.
    19. Thiess Buettner & Manuela Krause, 2021. "Fiscal equalization as a driver of tax increases: empirical evidence from Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 90-112, February.
    20. Monika Banaszewska, 2023. "Equalisation Grants and Local Taxation: The Case of Poland," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 47-65.

    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:bpj:bejeap:v:13:y:2013:i:1:p:173-202:n:11. 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: Peter Golla (email available below). General contact details of provider: https://www.degruyter.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.