Abstract
National budgets typically induce a substantial redistribution of resources across regions. In this paper I propose an economic definition of such implicit fiscal transfers, which, in the absence of gains or losses out of centralizing fiscal policy, is particularly suitable for territorial equity discussions. In my view the fiscal transfer of a region is equivalent to the region's willingness to pay for achieving fiscal independence. Such implicit transfers are also characterized in the context of a model where public debt is exclusively motivated by the tax-smoothing principle. It turns out that the fiscal transfer of a region can be computed by adding the region's primary balance and an allocation of the national primary deficit according to a linear combination of the region's share of receipts and expenditures. Thus, in general the computation of these implicit transfers requires detailed information about parameter values, which may not be available in practice. Some possible solutions are discussed.
Similar content being viewed by others
References
Alesina, A., and R. Perotti. (1995). “The Political Economy of Budget Deficits.” IMF Staff Papers 42:1, 1-31.
Asdrubali, P., B. Sorensen, and O.Yosha. (1996). “Channels of Interstate Risk Sharing: United States 1963-1990.” Quarterly Journal of Economics 111, 1081-1110.
Barro, R. (1986). “U.S. Deficits since World War I.” Scandinavian Journal of Economics 12, 55-93.
Barro, R. (1979). “On the Determination of Public Debt.” Journal of Political Economy 87, 940-971.
Caminal, R. (1998). “Measuring Fiscal Transfers Induced by National Budgets.” Institut d'Anàlisi Econòmica, working paper #428.98.
Mushkin, S. (1956). “Distribution of Federal Taxes among the States.” National Tax Journal 2.
Mushkin, S. (1957). “Distribution of Federal Expenditures Among the States.” The Review of Economics and Statistics 39.
Sala-i-Martín, S., and J. Sachs. (1992). “Fiscal Federalism and Optimum Currency Areas: Evidence for Europe and the United States.” In M. Canzoneri, P. Masson, and V. Grilli (eds.), Establishing A Central Bank: Issues in Europe and Lessons from the U.S. Cambridge University Press.
Wishlade, F., D. Yuill, S. Taylor, L. Davezies, B. Nicot, and R. Prud'homme. (1997). “Economic and Social Cohesion in the European Union: The Impact of Member States' own Policies.” forthcoming in Regional Development Studies European Commission, Luxembourg.
Rights and permissions
About this article
Cite this article
Caminal, R. Measuring Regional Fiscal Transfers Induced by National Budgets. International Tax and Public Finance 7, 195–205 (2000). https://doi.org/10.1023/A:1008756504887
Issue Date:
DOI: https://doi.org/10.1023/A:1008756504887