Abstract
| Original language | English |
|---|---|
| Pages (from-to) | 353-374 |
| Journal | Annals of regional science |
| Volume | 41 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2007 |
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The effects of fiscal equalisation in a model with endogenous regional governments : an analysis in a two-region numerical model. / Groenewold, Nicolaas; Hagger, A.J.
In: Annals of regional science, Vol. 41, No. 2, 2007, p. 353-374.Research output: Contribution to journal › Article
TY - JOUR
T1 - The effects of fiscal equalisation in a model with endogenous regional governments : an analysis in a two-region numerical model
AU - Groenewold, Nicolaas
AU - Hagger, A.J.
PY - 2007
Y1 - 2007
N2 - This paper is concerned primarily with the economic and welfare consequences of federal redistributive grants. We use a model which has two regions, each with households, firms and regional governments as well as a federal government. Private agents are (utility and profit) maximisers and we assume that regional governments are empire-builders in that they choose their expenditure and tax levels so as to maximise total expenditure-the size of their empire. Labour is free to move between regions in response to utility differences and does so until such differences have been eliminated. Inter-regional migration, inter-regional trade flows and federal government redistribution are the main sources of interconnectedness between the two regions. The model is linearised in log-differences and simulated using a calibration based on Australian state-level data. We find that the welfare effect of intergovernmental transfers is trivial but that all other variables of interest change substantially-consumption, employment, prices, taxes, wages, output and government expenditure. Finally, the signs of the effects of a federal transfer are not affected by the empire-building behaviour of regional governments although the magnitude of the effects is generally dampened.
AB - This paper is concerned primarily with the economic and welfare consequences of federal redistributive grants. We use a model which has two regions, each with households, firms and regional governments as well as a federal government. Private agents are (utility and profit) maximisers and we assume that regional governments are empire-builders in that they choose their expenditure and tax levels so as to maximise total expenditure-the size of their empire. Labour is free to move between regions in response to utility differences and does so until such differences have been eliminated. Inter-regional migration, inter-regional trade flows and federal government redistribution are the main sources of interconnectedness between the two regions. The model is linearised in log-differences and simulated using a calibration based on Australian state-level data. We find that the welfare effect of intergovernmental transfers is trivial but that all other variables of interest change substantially-consumption, employment, prices, taxes, wages, output and government expenditure. Finally, the signs of the effects of a federal transfer are not affected by the empire-building behaviour of regional governments although the magnitude of the effects is generally dampened.
U2 - 10.1007/s00168-006-0105-3
DO - 10.1007/s00168-006-0105-3
M3 - Article
VL - 41
SP - 353
EP - 374
JO - Annals of regional science
JF - Annals of regional science
SN - 0570-1864
IS - 2
ER -