International Tax and Public Finance

, Volume 22, Issue 3, pp 376–400 | Cite as

A structural approach for analyzing fiscal equalization

  • Audun LangørgenEmail author


Many countries apply cost equalization and/or fiscal capacity equalization formulas to enable subnational governments to provide comparable service standards at comparable tax rates. This paper demonstrates how measures of expenditure needs and fiscal capacity can be derived from a structural model of local government spending and taxing behavior. The structural parameters are shown to provide the information required to implement equalization defined as a balance between the principles of horizontal equity and local autonomy.


Fiscal equalization Horizontal equity Local autonomy Expenditure needs Fiscal capacity Structural modeling 

JEL Classification

H71 H72 



I am grateful to Rolf Aaberge, Jens Dietrichson, Magne Mogstad, Jørn Rattsø, and two anonymous referees for helpful comments. Financial support from the Norwegian Ministry of Local Government and Regional Development is gratefully acknowledged.


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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Statistics NorwayOsloNorway

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