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Problems of Modeling of the Impact of the System of Intergovernmental Transfers on the Fiscal Behavior of Subnational Governments

Author

Listed:
  • P. KADOCHNIKOV
  • S. SINEL
  • NIKOV-MURYLEV
  • I. TRUNIN.

Abstract

Intergovernmental transfers are important instruments of fiscal policy in a state with several levels of government. Existing literature in the area of economics of fiscal federalism leaves beyond its scope the analysis of the impact of the system of intergovernmental grants' allocation on the choice of subnational governments with respect to taxation and public expenditures. The authors assume that under certain conditions it is the methodology of intergovernmental transfers' allocation that along with transfers types creates fiscal incentives for subnational governments. The main reason for the presence of fiscal incentives caused by intergovernmental transfers' allocation mechanism is assumed to depend on the fact whether transfers' allocation mechanism is based on reported subnational public revenues and expenditures or it takes into account estimates of regional fiscal capacity and expenditure needs. In order to analyze underlying mechanisms of fiscal incentives for subnational governments a simple model of their behavior is used under conditions induced by parametric formula for equalization grants' allocation set by the central government.

Suggested Citation

  • P. Kadochnikov & S. Sinel & Nikov-Murylev & I. Trunin., 2002. "Problems of Modeling of the Impact of the System of Intergovernmental Transfers on the Fiscal Behavior of Subnational Governments," Voprosy Ekonomiki, NP Voprosy Ekonomiki, vol. 5.
    • Handle: RePEc:nos:voprec:2002-5-5
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