International Tax and Public Finance

, Volume 22, Issue 2, pp 311–329 | Cite as

Fiscal equalization, government expenditures and endogenous growth

Article
First Online:

Abstract

This paper analyzes the effect of a fiscal equalization system on the composition of government expenditures of subnational governments. We incorporate vertical equalization transfers with optimal choice of the composition of government expenditures in an endogenous growth model and show that such transfers reduce the incentives of recipient subnational governments to undertake productive expenditures. Using data for Canadian provinces, we find evidence that, after controlling for a number of determinants of government expenditures, the ratio of productive expenditures to total government expenditures was lower in equalization-receiving than non-receiving provinces.

Keywords

Fiscal equalization Government expenditures Endogenous growth 

JEL Classification

H7 E62 
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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of WinnipegWinnipegCanada

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