The OECD Fiscal Network has published a new Working Paper on Fiscal Federalism, written by Sean Dougherty and Kass Forman. This time, the research is focused on interregional equalisation systems, which are the mechanisms that aim to ensure that every subcentral government is capable of providing a minimum level of public services by carrying out a similar fiscal effort, disregards how broad their tax bases are. “Evaluating fiscal equalisation: finding the right balance” is available for download at the OECD iLibrary.
Here it is the abstract of this new Working Paper:
“Fiscal equalisation refers to the transfer of financial resources to and between subnational governments with the aim of mitigating regional differences in fiscal capacity and expenditure needs. However, the determination of fiscal capacity and expenditure needs is not a straightforward task. OECD countries use widely varying mechanism design approaches in their equalisation systems. This paper compares national approaches, covering the three modes of fiscal equalisation: pure revenue equalisation, revenue/cost equalisation and gap-filling equalisation, describing the distinct impacts of each approach on subnational revenue disparities. A clear inverse relationship emerges between the size of the cost-equalising component within a system and the percentage change in subnational per capita revenue disparities after equalising transfers are applied, although no significant relationship emerges between equalisation and regional convergence.”
This OECD Working Paper series covers issues related to intergovernmental fiscal relations and local/regional public finance, such as: tax and spending assignment across government levels; intergovernmental grants; fiscal equalization; local and regional public service efficiency; inter-jurisdictional tax competition; and macroeconomic issues such as intergovernmental fiscal management and sub-central fiscal rules. Many of these working papers are outputs of the OECD Network on Fiscal Relations Across Levels of Government. Related working papers on fiscal federalism issues are also published in other OECD working paper series on tax policy, economics, public governance and regional development.