This paper investigates incentive effects of fiscal equalization on local tax rates. I propose three refinements to current empirical estimations of these incentive effects. I show that local policy makers may conceive of changes in equalization transfers as stemming from discrete rather than...

This paper investigates incentive effects of fiscal equalization on local tax rates. I propose two refinements to current empirical estimations of these incentive effects. I show that local policy makers may conceive of changes in equalization transfers as stemming from discrete rather than...

In this paper, commuting is introduced to a federal economy where benevolent lower-level (state) governments levy an ad valorem tax on labour income. This results in inefficiently low levels of taxation, even when households as a whole do not migrate. Indeed, rather than attracting more workers...

A simple theory suggests that a common form of federal horizontal equalization grants should cause subnational governments to levy higher tax rates, distorting local tax bases and so increasing federal transfers. To test this, I examine Canadian provincial tax policies in the 1972-2002 period....