Lisa Grazzini, Alessandro Petretto

Revenue Equalization Systems in a Federation with Tax Evasion

Section: Articles
FinanzArchiv (FA)

Volume 68 () / Issue 3, pp. 303-330 (28)

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We analyze how vertical or horizontal fiscal equalization affects the overprovision of local public goods due to vertical fiscal externality, when there is tax evasion. The overspending incentive of regional governments is examined in the cases of fiscal equalization based on pretax earned income and on reported taxable income. We show that a more efficient level of regional public expenditure is associated with a vertical equalization scheme based on a proxy of earned income taken from national-accounts data.

Lisa Grazzini No current data available.

Alessandro Petretto No current data available.