conditions as in Keen and Kotsogiannis (2002, 2004). However, the neat trade-off between positive horizontal externalities and … negative vertical externalities breaks down entirely in our ad valorem setting. Precisely because of this ambiguity …, decentralizing the unitary outcome via revenue equalisation becomes far more complex than under unit taxation. Only when the marginal …

In theory, federal transfers that make household location decisions efficient should ignore local cost differences …, subsidize positive externalities, and offset differences in federal-tax payments and local taxes levied on non-residents, but … equalization policy appears neither efficient nor equitable, but exacerbates pre-existing inefficiencies and underfunds minorities …