Fiscal equalization and regions' (un)willingness-to-tax: Evidence from Germany

Arbeitspapier

Under cooperative federalism, when an identical tax tariff applies to all regions of a federation, usually redistribution rules are implemented to smooth fiscal differences. The administration of tax collection, however, is sometimes delegated to the regional level, leaving the regional administrations some discretion concerning the auditing of tax returns. Building on a stylized model, we show that under such conditions granted discretionary tax deductions at the level of tax units is positively related to state-specific marginal rates of loss (MRL), i.e., the fraction of an additional tax Euro raised in a region that the fiscal-equalization system redistributes to other jurisdictions. We empirically test the model's presumption using administrative income-tax micro data from Germany. Regression estimates comply with the implications of our model.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Working Paper ; No. 2011-06

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Intergovernmental Relations; Federalism; Secession
• Subject: Fiscal federalism ; rate of loss ; income tax returns ; Finanzausgleich ; Ländersteuer ; Einkommensteuerpolitik ; Steueraufkommen ; Schätzung ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bönke, Timm ; Jochimsen, Beate ; Schröder, Carsten
• Event: Veröffentlichung
• (who): Kiel University, Department of Economics
• (where): Kiel
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/48640