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Yardstick competition, fiscal disparities, and equalization

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  • Allers, Maarten A.

Abstract

The theory of political yardstick competition states that a comparison of public service levels and tax rates with those in nearby jurisdictions can provide voters with a useful instrument to assess politicians’ performance. However, we argue that fiscal disparities bias this yardstick, and that this bias may be removed through fiscal equalization.

Suggested Citation

  • Allers, Maarten A., 2012. "Yardstick competition, fiscal disparities, and equalization," Economics Letters, Elsevier, vol. 117(1), pages 4-6.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:4-6
    DOI: 10.1016/j.econlet.2012.04.076
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    References listed on IDEAS

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    1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    2. Besley, Timothy & Smart, Michael, 2007. "Fiscal restraints and voter welfare," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 755-773, April.
    3. Revelli, Federico, 2006. "Performance rating and yardstick competition in social service provision," Journal of Public Economics, Elsevier, vol. 90(3), pages 459-475, February.
    4. Ladd, Helen F. & Yinger, John, 1994. "The Case for Equalizing Aid," National Tax Journal, National Tax Association, vol. 47(1), pages 211-24, March.
    5. Maarten Allers & J. Elhorst, 2005. "Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 493-513, August.
    6. 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.
    7. Salmon, Pierre, 1987. "Decentralisation as an Incentive Scheme," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 3(2), pages 24-43, Summer.
    8. Ladd, Helen F. & Yinger, John, 1994. "The Case for Equalizing Aid," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(1), pages 211-224, March.
    9. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
    10. Kotsogiannis, Christos & Schwager, Robert, 2008. "Accountability and fiscal equalization," Journal of Public Economics, Elsevier, vol. 92(12), pages 2336-2349, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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).
    2. Di Liddo, Giuseppe & Vinella, Annalisa, 2024. "Global public good provision in emergency states: A model of (asymmetric) yardstick competition between rent-seeking governments," Socio-Economic Planning Sciences, Elsevier, vol. 93(C).
    3. Ivo Bischoff & Stefan Krabel, 2017. "Local taxes and political influence: evidence from locally dominant firms in German municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 313-337, April.
    4. Tengku Munawar Chalil, 2020. "Fiscal competitions among Indonesian municipalities: a spatial econometric analysis," Asia-Pacific Journal of Regional Science, Springer, vol. 4(1), pages 241-260, February.
    5. Farah, Alfa, 2019. "Fiscal disparity, institutions and asymmetric yardstick competition," Economics Letters, Elsevier, vol. 181(C), pages 74-76.
    6. Di Liddo, Giuseppe & Giuranno, Michele G., 2016. "Asymmetric yardstick competition and municipal cooperation," Economics Letters, Elsevier, vol. 141(C), pages 64-66.
    7. Giuseppe Di Liddo & Annalisa Vinella, 2022. "Asymmetric yardstick competition: traditional procurement versus public-private partnerships," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(3), pages 669-695, November.
    8. 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.
    9. Di Liddo, Giuseppe & Morone, Andrea, 2017. "Yardstick competition and fiscal disparities: An experimental study," Economics Letters, Elsevier, vol. 159(C), pages 134-137.
    10. Pierre Salmon, 2013. "Horizontal competition in multilevel governmental settings," Working Papers hal-00830876, HAL.
    11. Christian Bergholz & Ivo Bischoff, 2018. "Local council members’ view on intermunicipal cooperation: does office-related self-interest matter?," Regional Studies, Taylor & Francis Journals, vol. 52(12), pages 1624-1635, December.
    12. Addey, Kwame Asiam & Nganje, William, 2024. "Climate policy volatility hinders renewable energy consumption: Evidence from yardstick competition theory," Energy Economics, Elsevier, vol. 130(C).
    13. repec:dgr:rugsom:14019-eef is not listed on IDEAS
    14. Linda Toolsema & Maarten Allers, 2014. "Welfare Financing: Grant Allocation and Efficiency," De Economist, Springer, vol. 162(2), pages 147-166, June.
    15. repec:dgr:rugsom:12004-eef is not listed on IDEAS
    16. Allers, Maarten & Geertsema, Bieuwe, 2014. "The effects of local government amalgamation on public spending and service levels," Research Report 14019-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    17. Bonev, Petyo & Glachant, Matthieu & Söderberg, Magnus, 2022. "Implicit yardstick competition between heating monopolies in urban areas: Theory and evidence from Sweden," Energy Economics, Elsevier, vol. 109(C).
    18. Toolsema-Veldman, Linda & Allers, M.A., 2012. "Welfare financing," Research Report 12004-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    19. Wouter Vermeulen & Maarten Allers, 2013. "Fiscal Equalization and Capitalization: Evidence from a Policy Reform," CPB Discussion Paper 245.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    20. Wouter Vermeulen & Maarten Allers, 2013. "Fiscal Equalization and Capitalization: Evidence from a Policy Reform," CPB Discussion Paper 245, CPB Netherlands Bureau for Economic Policy Analysis.
    21. Carmela Brugnano & Giuseppe Ferraina & Andrea Ferri & Larysa Minzyuk & Felice Russo, 2017. "Federalismo municipale e nuovo sistema perequativo: il Fondo di solidariet? comunale 2016," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2017(2), pages 93-133.
    22. Giuseppe Liddo & Andrea Morone, 2023. "Local income inequality, rent-seeking detection, and equalization: a laboratory experiment," Public Choice, Springer, vol. 196(3), pages 257-275, September.
    23. Farah, Alfa, 2018. "Fiscal disparity, institutions and asymmetric yardstick competition," CIW Discussion Papers 2/2018, University of Münster, Center for Interdisciplinary Economics (CIW).
    24. repec:dgr:rugsom:14023-eef is not listed on IDEAS
    25. Giuranno Michele G. & Scrimitore Marcella & Stamatopoulos Giorgos, 2020. "Managerial Accountability Under Yardstick Competition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(2), pages 1-4, June.

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    More about this item

    Keywords

    Yardstick competition; Fiscal disparities; Equalization;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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