Abstract
This paper studies the impact of redistributive fiscal equalization transfers on the choice between a distortionary capital tax and a non-distortionary land tax at the local layer of government. In a standard tax competition model, the paper shows that this impact is ambiguous in that, depending on the motives driving local policy choices, fiscal equalization may either induce a more or a less distortionary tax structure. Using a natural experiment from German municipal finance, the paper provides empirical evidence in support of the latter prediction, i.e. fiscal equalization tilts the tax structure towards less distortionary tax instruments.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.