Fiscal capacity equalisation, at least of the type implemented in Australia, is shown to link regions together through a grant distribution formula that creates an incentive for regions to act strategically in order to influence the size of their grant. This behaviour distorts the provision of...

In this paper, a simulation model is constructed that would enable policy-makers in transitional economies to estimate regionally disparate capital needs and direct capital expenditures to improve standards of public capital or services such as education and health. The model allows policy...