Thiess Buettner, Robert Schwager, Sebastian Hauptmeier

Efficient Revenue Sharing and Upper-Level Governments: Theory and Application to Germany

Volume 167 () / Issue 4, pp. 647-667 (21)

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This paper explores conditions under which revenue-sharing grants will achieve efficiency. We develop a general formulation of the state's decision problem of implementing a set of local policies. A theoretical analysis shows that if the state government pursues own policies and cannot levy lump-sum contributions from local jurisdictions, it will implement revenue-sharing grants that induce local governments to raise local tax rates. A subsequent empirical analysis of local tax policy in Germany suggests that attempts by state-level governments to extract fiscal resources from local governments result in higher tax rates at the local level.

Thiess Buettner No current data available.

Robert Schwager No current data available.

Sebastian Hauptmeier No current data available.