Social Sciences
8 years ago

Equalization transfer sparks higher tax rates, boosts regional cooperation for efficiency.

Equalization and Fiscal Competition
Leonzio Rizzo

Paper Summary

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The article explores how equalization transfers can influence tax rates in regions with rich and poor citizens. Regions with mobile tax bases tend to raise tax rates when equalization transfers are in place. This is because the transfers help correct inefficient tax levels and create agreement opportunities among regional representatives. The study shows that equalization transfers can lead to more efficient tax policies compared to compensation transfers.