Why are tax revenues of local governments so low?

Using a unique data set on federal grants and tax revenues of more than 5000 Brazilian cities, we find that the federal government imposes an implicit tax of almost 10% on city governments’ tax revenues: for every dollar that a city collects from its residents, the federal government withdraws grants worth 9 cents from the city. Our findings suggest that local government tax revenues are low not because federal grants crowd out tax revenues, but because tax revenues crowd out federal grants.     

COLLUSION IN LOCAL PUBLIC WORKS*

A hierarchical model of collusion in local public works is presented. A local authority plans to undertake a project, delegating its construction to a construction firm. Both of them know the project's cost. However, the federal government decides whether to subsidize the project without knowing its cost. Therefore, the local authority and the constructor may agree to misreport their private information, in order to benefit from the allocation of federal grants. We show that different collusive behaviors may emerge. Then, we characterize the optimal federal grant policy. Finally, we investigate when constructing (shutting down) useless (valuable) projects is optimal.     

The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions

This paper shows how a popular system of federal revenue equalization grants can limit tax competition among subnational governments, correct fiscal externalities, and increase government spending. Remarkably, an equalization grant can implement efficient policy choices by regional governments, even in the presence of differences in regional tax capacity, tastes for public spending, and population. If aggregate tax bases are elastic, however, equalization leads to excessive taxation. Efficiency can be achieved by a modified formula that equalizes a fraction of local revenue deficiencies equal to the fraction of taxes that are shifted backward to factor suppliers.     

Using a discontinuous grant rule to identify the effect of grants on local taxes and spending

When investigating the effects of federal grants on the behavior of lower-level governments, it is hard to defend the handling of grants as an exogenous factor. Federal governments often set grants based on characteristics and performance of decentralized governments. In this paper we make use of a discontinuity in the Swedish grant system in order to estimate the causal effects of general intergovernmental grants on local spending and local tax rates. The formula for the distribution of funds is used as an exclusion restriction in an IV-estimation. We find evidence of crowding-in, where federal grants are shifted to more local spending, but not to reduced local tax rates.     

Revisiting the redistribution effects of intergovernmental fiscal transfers: evidence from Taiwan

This paper employs a panel of 23 local governments in Taiwan over 1998–2010 to re-estimate the redistribution effects of intergovernmental fiscal transfers by considering a self-financing resources of local government as the transition variable in panel smooth transition regression models. Empirical results show that the income (or tax revenues) redistribution effects of fiscal transfer policies are nonlinear and vary with time and across local governments. The grants from central government can improve income and tax revenues distribution of local governments; however, the centrally allotted tax revenues have inverse effects and the total fiscal transfers have ambiguous effects. The total fiscal transfer is a proper policy instrument for improving income redistribution, and the grants for improving tax revenues redistribution. However, high self-financing resources ratios are harmful for these redistribution effects.     

Political Determinants of Intergovernmental Grants: Evidence From Argentina

This paper explores the determinants of federal grants allocation across provincial states in Argentina. Our analysis suggests that the redistributive pattern implicit in the federal system of intergovernmental grants cannot be explained on normative grounds exclusively. In order to understand the rationale behind federal grants distribution, a positive approach could render better results. Specifically, we claim that the distribution of federal grants could be associated with political variables such as the political representation of jurisdictions at Congress. The econometric analysis suggests that the significant disparity observed in the per capita representation across different provinces is an important factor explaining the allocation of those transfers. In this respect, overrepresented provinces, both at the senate and at the lower chamber, have received, on average, higher resources from the national government compared to more populous and less represented states. These results are consistent with those observed in other countries.     

地区差距、要素流动与财政分权

本文在财政分权框架下引入不完全人口流动和内生劳动供给选择 ,针对两个不对称的地方经济 ,研究了政府的最优税收、最优公共支出和最优转移支付政策。我们发现了零中央政府收入税和逆向财政缺口 ,在有限政策工具的约束下 ,对应性转移支付也具有缩小区域差距的功能。不同级别政府间的服务竞争和税收竞争极大地影响了个人和政府的最优决策 ,拥挤效应和实际禀赋效应放大了通常意义上的收入效应水平。人口流动和财政分权提高了低生产力地区的福利 ,数值模拟分析结果表明高生产力、高禀赋地区对低生产力、低禀赋地区存在隐性的区域间收入再分配 ,中央政府的干预措施一般具有协调区域发展、补贴低生产力低禀赋地区的性质。结合我国东西部的经济现实 ,我们认为中央政府应该打破已有的利益分配格局 ,优化转移支付资金的结构 ,提高财政政策效率     

Political Economy of Conditional Aid in a Federal Economy

This paper employs a political economy approach to model the joint determination of national and subnational sectoral protection in an open federal economy. Political interactions between special interest groups and policymakers as well as economic interrelationships between federal and state government policies are analyzed. The model is applied to study the effects of conditional financial assistance on policy‐making in the aid‐receiving federal economy. We find that policy‐based financial assistance to the federal government tends to reduce the extent of distortions resulting from the federal government policy. However, if federal and state government policies are strategic substitutes, state government induced policy distortions would increase, thereby detracting from the effectiveness of conditionality in reducing overall policy distortions in the recipient economy.     

Tax incentives in fiscal federalism: an integrated perspective

Abstract Models of fiscal federalism rarely account for the efficiency implications of intergovernmental fiscal ties for federal tax policy. This paper shows that fiscal institutions such that federal tax deductibility, vertical revenue‐sharing, and fiscal equalization (being common features of existing federations) encourage local taxation, but may discourage federal taxation. Furthermore, the structure of public spending is skewed towards local spending. We also show that, when considering Leviathan governments, fiscal institutions reduce confiscatory taxation by the federal government. The result is contrary to the Cartelization Hypothesis ( Brennan and Buchanan 1980 ). Finally, we characterize the efficient design of intergovernmental fiscal ties.     

Federal Balance and Economic Stability*

The paper examines the concepts of and the conditions for vertical and horizontal fiscal balance in a federal system, with special reference to intergovernmental grants arrangements and the effects of open-ended settlements on the stability of the system. The notions of vertical balance, horizontal balance and open-endedness are then applied to other aspects of economic policy, in particular the formulation of budgetary policy by a single government and the settlement of wage claims. It is suggested that economic instability in Australia during recent years has been associated with two forms of horizontal imbalance, resulting from institutional factors which have encouraged open-endedness in the process of determining budget priorities on the one hand and open-endedness in wage bargaining on the other.     

Trade Liberalization and Environmental Taxation in Federal Systems

The literature on trade liberalization and environment has not yet considered federal structures. In this paper, we show how the design of environmental policy in a federal system has implications for the effects of trade reform. Trade liberalization leads to a decline in pollution taxes, regardless of whether pollution taxes are set at the federal (centralized) or local (decentralized) level, and it increases social welfare. The effect under a decentralized system is smaller than if these taxes are set by the federal government, and pollution emissions therefore decline in this case. Moreover, majority bias interacts with trade liberalization if federal taxes are used.     

Decentralizing antipoverty program delivery in developing countries

We study the effects on accountability in government service delivery of decentralizing administration of an antipoverty program. While governments at both central and local levels are vulnerable to antipoor policy biases owing to political capture, centralized delivery systems are additionally prone to bureaucratic corruption, owing to problems in monitoring bureaucratic performance. Decentralizing the delivery system promotes cost-effectiveness and improves intraregional targeting at low program scales. But interregional targeting may deteriorate, as central grants to high-poverty regions shrink, owing to high capture of local governments by local elites in such regions.     

INTERGOVERNMENTAL GRANTS AND THE POSITIONING OF PRESIDENTIAL PRIMARIES AND CAUCUSES: EMPIRICAL EVIDENCE FROM THE 1992, 1996, AND 2000 ELECTION CYCLES

The present study tests the theory that states can impact the size of the grants they receive (per capita) from the federal government by becoming pivotal players in the federal electoral (primary/caucus) process. That is, by rearranging their presidential primary and caucus dates, states can play an important role in determining the field of candidates for the two major political parties in the United States. States are then likely to be rewarded within the budgetary process at the federal level, which begins with the executive branch. Results from a simultaneous equation system suggest that the impact of the average movement of primaries/caucuses in the sample period (10.36 days closer to 1 January) results in an increase of federal grants of $362 million to $1.2 billion (over a two-year period) for the average state. These results are consistent with the current pattern in the American political process of more front-ended presidential primaries and caucuses.     

The effect of state education finance reform on total local resources

Both the federal government and the states use intergovernmental grants to try to change the composition of local spending across different programs, as well as the distribution of resources across localities. Many states are now under court order to use state education grants to reduce local disparities in education spending. While a substantial body of literature suggests that these court orders increase the level and progressivity of state education spending, there is little evidence on their broader effects on the total resources available not just for schools in low-income districts, but for other programs across all localities. We find that states finance the required increase in education spending in part by reducing their aid to localities for other programs, particularly for wealthier areas. Thus, while court-ordered school finance equalizations do increase total state aid to localities for education, they do so at the expense of drawing state intergovernmental aid away from programs like public welfare, health, hospitals, and general services. These findings provide insight into the effectiveness of using earmarked funds to achieve redistribution.     

Subsidies to the Arts with Multiple Public Donors*

This paper develops a theoretical framework for analyzing public funding for arts markets in which both a national-level arts council and local governments are potential donors. While the arts council is assumed to allocate grants to maximize the expected number of theatres achieving an ‘acceptable’ level of output, the local government is only concerned to maximize its total budget from local tax revenues. Despite this objective, a rationale for local governments to give grants is derived. The total grant allocation to any institution arises as an equilibrium outcome to a game played between the arts council and the relevant local government. Theatre managements take account of this allocation process in making their output decisions. Several empirical propositions are derived.     

美国政府对联邦土地及其附属资源的管理模式

美国宪法确立了联邦政府对其拥有的土地及附属自然资源的专属管理权,但这种专属管理权的行使不可能排斥州和地方政府的参与。联邦政府与州政府以及地方政府在对联邦土地及附属自然资源的管理上,实际实行的是联邦政府主导的合作型联邦制。在保证联邦政府对联邦土地管理最终决定权的前提下,联邦政府通过制定法律和签订协议的形式与州和地方政府分享权力,以便对联邦土地及附属自然资源进行富有成效的管理。     

REGIONAL UNEMPLOYMENT DISPARITIES: AN EVALUATION OF POLICY MEASURES*

This paper analyses the efficacy of regional and federal government policies in reducing inter‐regional unemployment disparities. We use as our framework a two‐region general equilibrium model with a given freely‐mobile supply of labour. We assume inter‐regional migration to occur in response to inter‐regional utility differentials. Each region has households, firms and a regional government. In addition to regional governments, there is a federal government. The firms in a region use a single factor, labour, to produce a single good which we assume to be different to that produced in the other region. It is supplied to households and to the regional government in the form of payroll taxes. Households consume some, trade some with households in the other region and give some up to the federal government as income tax. Firms and households bargain over wages and firms then choose employment to maximise profits. The resulting equilibrium will generally not be a full‐employment one. We simulate a linearised numerical version of the model. We examine seven alternative policies, six carried out by a regional government and one by the federal government. In the first group there are traditional tax/expenditure polices as well as policies which might be seen as attacking the natural rate of unemployment: changes in unemployment benefits, changes in union power, changes in the labour force and changes in labour productivity. The federal government policy is a regionally‐differentiated fiscal policy. Contrary to expectations, many policies which have traditionally been recommended to alleviate unemployment are found, in fact, to exacerbate the unemployment problem.     

Government Purchases, Government Transfers, and the Post-1970 Slowdown In U.S. Economic Growth

This article shows that the post-1970 slowdown in U.S. economic growth can be explained by a shift in fiscal policy away from government purchases and toward transfer payments. Two endogenous growth models that include government purchases and transfers imply a relationship between these variables and long-run growth. Empirically, the simultaneous decline in the fraction of output purchased by federal, state, and local governments and rise in transfer payments around 1970 dramatically overpredict the growth slowdown of the early 1970s. The growth rate is predicted to have risen in the absence of this change in fiscal policy.     

俄罗斯政府门户网站建设现状及经验

俄罗斯政府门户网站建设特点是由联邦政府统一组织和管理,由联邦各部和地方政府根据需要实施建设。其建设经验是：制定和完善网站建设的法规基础、网站建设标准化和注重网络信息安全。俄联邦政府网页设计设计简洁,按总统和政府管辖范围提供链接,查询方便,网速快。网站建设的不足之处：政府存在的官僚习气和过分保密的情况,致使信息资源利用不够充分。     

POVERTY TRAPS WITH LOCAL ALLOCATION TAX GRANTS IN JAPAN

This essay investigates poverty traps related to Local Allocation Tax (LAT) grants in Japan. LAT grants, which are transfers of funds from the central government to local governments, make efforts for enhancing regional economic growth, due to the calculation of the LAT grants. Using a simple dynamic model, we show that LAT grants lower regional income and are a disincentive to localities to increase their estimated tax revenue. Using panel Granger (non‐)causality tests, we find empirical support for asserting that there are poverty traps due to the LAT grants in Japan.