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Minimum Standards, Fixed Costs and Taxing Autonomy of Subnational Governments

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  • Helmut Seitz

Abstract

The paper examines the question how fiscally strong and fiscally weak states respond to taxing autonomy at the state level, a subject that is currently under debate in Germany where states do have virtually no power to tax. We use a simple theoretical model that incorporates state surtaxes on the federal income tax bill taking into account fixed costs as well as minimum standards for the provision of public services. We show that both factors work in the direction of forcing fiscally weak states to collect higher surtaxes as compared to fiscally strong states. The empirical section presents evidence on the importance of fixed costs at the state level and calculates the distributional effects of taxing autonomy taking feedbacks of the fiscal equalization system into account. In addition simple estimates of the importance of spending on minimum standards are derived.

Suggested Citation

  • Helmut Seitz, 2008. "Minimum Standards, Fixed Costs and Taxing Autonomy of Subnational Governments," CESifo Working Paper Series 2341, CESifo.
    • Handle: RePEc:ces:ceswps:_2341
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal federalism; minimum standards; tax autonomy; fiscal equalization;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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