Home >> FinanzArchiv: Public Finance Analysis, Volume 65, Number 1

Equalization Transfers, Fiscal Decentralization, and Economic Growth

Authors: Ogawa, Hikaru; Yakita, Sayaka

Source: FinanzArchiv: Public Finance Analysis, Volume 65, Number 1, March 2009 , pp. 122-140(19)

Publisher: Mohr Siebeck

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Abstract:

This paper analyzes the fiscal decentralization and equalization transfers in a two-region model of endogenous growth. In our model, two levels of government with different objectives are considered: the local governments maximize the utility of the residents of the region, and the central government makes the equalization transfers to close the gaps in fiscal capacity among the regions and pays attention to the economic growth rate. Our first result demonstrates that the preferred tax rate chosen by the local government is positively affected by the magnitude of fiscal decentralization. The second result shows that the fiscal equalization policies of the central government have no influence on the speed of interregional growth convergence. Furthermore, the normative implication is obtained from our final results that there exists an optimal degree of fiscal decentralization to reach the central government's goal of growth maximization, but the magnitude of fiscal decentralization chosen by the central government is excessive to entail the highest regional welfare.

Keywords: EQUALIZATION TRANSFERS; FISCAL DECENTRALIZATION; ECONOMIC GROWTH; CONVERGENCE

Document Type: Research article

DOI: http://dx.doi.org/10.1628/001522109X444198

Publication date: 2009-03-01

More about this publication?
  • FinanzArchiv founded in 1884 is one of the world's oldest professional journals in public finance.

    FinanzArchiv publishes original work from all fields of public economics which are of interest to an international readership, e.g. taxation, public debt, public goods, public choice, federalism, market failure, social policy, and the welfare state. Special emphasis is on high-quality theoretical and empirical papers on current policy issues.

    FinanzArchiv is a well-established, internationally oriented journal in the field of public economics, widely read in Europe and all over the world.

    FinanzArchiv is listed in the Social Science Citation Index (SSCI, JCR impact factor 2007 0,296), in Current Contents/Social and Behavioral Sciences, in IDEAS and RePEc (IDEAS/RePEc simple impact factor 2008 1.177), in the Journal of Economic Literature (CD and online), and in the International Bibliography of the Social Sciences.

    FinanzArchiv is a fully peer-reviewed journal committed to a prompt turnaround of submissions. No more than four months should pass between online submission of a manuscript and the editor's decision on acceptance, revision, or rejection.
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