Resource title

Raising taxes through equalization

Resource image

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Resource description

A simple theory suggests that a common form of federal horizontal equalization grants should cause subnational governments to levy higher tax rates, distorting local tax bases and so increasing federal transfers. To test this, I examine Canadian provincial tax policies in the 1972-2002 period. Consistent with the theory, provinces respond to expansions of equalization transfers by increasing their own tax rates. I estimate that on average tax rates in grant-receiving provinces were substantially and significantly higher as a consequence of the transfer formula.

Resource author

Michael Smart

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25971

Resource license

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