Back to issue
Cover of: Efficient Revenue Sharing and Upper-Level Governments: Theory and Application to Germany
Robert Schwager, Thiess Buettner, Sebastian Hauptmeier

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

Section: Articles
Volume 167 (2011) / Issue 4, pp. 647-667 (21)
Published 04.10.2018
DOI 10.1628/jite-2011-0007
  • article PDF
  • available
  • 10.1628/jite-2011-0007
Summary
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.