Federal tax-transfer policy and intergovernmental pre-commitment

Arbeitspapier

Federal and state governments often differ in the capacity to pre-commit to expenditure and tax policy. Whether the implied sequence of public decisions has any efficiency implications is the subject of this paper. We resort to a setting which contrary to most of the literature does not exhibit a perfect tax-base overlap. We show that a federal government's pre-commitment capacity is welfare-improving. Efficiency, however, does not improve over all decision margins. The welfare-increasing policy entails a more distorted level of public consumption. Moreover, welfare may also improve if local governments are able to pre-commit towards the upper level. The rationale is that although federal transfers are formally unconditional they nevertheless entail a tax-price effect; thereby potentially counteracting incentives to engage in a “race to the bottom” in fiscal competition among local governments.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2054

Classification and Topics

• Classification: Wirtschaft ; State and Local Taxation, Subsidies, and Revenue ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; Structure and Scope of Government: General
• Subject: Finanzföderalismus ; Finanzausgleich ; Steuerpolitik ; Steuerwettbewerb ; Agency Theory ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koethenbuerger, Marko
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/26099
• Last update: 10.03.2025, 11:44 AM CET