Resource title

Regional Stabilization by Fiscal Equalization? Theoretical Considerations and Empirical Evidence from Germany

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Resource description

In the context of EMU fiscal equalization schemes have been proposed as a means to stabilize regions against asymmetric shocks. A theoretical analysis shows that besides reducing the cross-sectional income variance the redistributive element of fiscal equalization causes incentive effects for regional governments, undermining the efficient supply of public goods. Yet, this objection is shown to be less important in a situation of insufficient demand, where interregional redistribution actually favors stabilization. In an empirical analysis for Germany, the paper adds support for the finding of significant regional stabilization by fiscal flows. The results indicate that about 17 % of GDP variation across West Germany's states has been removed by fiscal flows during the last two decades. Thus, in Germany where the fiscal federalism is criticised for its heavy equalization the extent of regional stabilization provided by fiscal flows is quite similar to other federal countries.

Resource author

Thiess B├╝ttner

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/24576

Resource license

Adapt according to the presented license agreement and reference the original author.