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Intergovernmental Grants in the Presence of Distortionary Taxation and Foreign Ownership

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  • Gordon Tarzwell

    (University College of the Cariboo)

  • James R. Seldon

    (University College of the Cariboo)

Abstract

This article analyzes intergovernmental transfers in a federal setting where lower level governments use distortionary taxation. Transfer policy is modeled in a federation with two states: foreign ownership of land and endogenously determined tax rates. The article concludes that under these circumstances, the standard result in the literature requires modification. Not only will the federal government be unable to achieve the national output-maximizing solution through the use of transfer payments, but the prescription for equating net fiscal benefits across states will, in general, not even achieve a second best.

Suggested Citation

  • Gordon Tarzwell & James R. Seldon, 1997. "Intergovernmental Grants in the Presence of Distortionary Taxation and Foreign Ownership," Public Finance Review, , vol. 25(6), pages 644-659, November.
    • Handle: RePEc:sae:pubfin:v:25:y:1997:i:6:p:644-659
    DOI: 10.1177/109114219702500605
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    References listed on IDEAS

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    3. Wildasin, David E., 1983. "The welfare effects of intergovernmental grants in an economy with independent jurisdictions," Journal of Urban Economics, Elsevier, vol. 13(2), pages 147-164, March.
    4. Flatters, Frank & Henderson, Vernon & Mieszkowski, Peter, 1974. "Public goods, efficiency, and regional fiscal equalization," Journal of Public Economics, Elsevier, vol. 3(2), pages 99-112, May.
    5. Alm, James, 1983. "Intergovernmental Grants and Social Welfare," Public Finance = Finances publiques, , vol. 38(3), pages 376-397.
    6. James M. Buchanan, 1952. "Federal Grants and Resource Allocation," Journal of Political Economy, University of Chicago Press, vol. 60(3), pages 208-208.
    7. Wallace E. Oates, 1968. "The Theory of Public Finance in a Federal System," Canadian Journal of Economics, Canadian Economics Association, vol. 1(1), pages 37-54, February.
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