The Fiscal Incentive Effects of the Australian Equalisation System

Atax Discussion Paper No. 10

19 Pages Posted: 28 Nov 2004

See all articles by Bev Dahlby

Bev Dahlby

University of Alberta - Department of Economics

Neil Warren

UNSW Business School

Date Written: September 2002

Abstract

Equalisation grants can affect a state's fiscal behaviour because its tax policies can affect the size of its grant. For a large state, an increase in its tax rate will increase the standard tax rate used to calculate the grant for that base and thereby reduce (increase) the state's grant if it has a high (low) relative fiscal capacity with respect to that base. In addition, a state's grant will increase if its relative fiscal capacity declines when it raises an additional tax revenue. Our econometric results indicate that the equalisation system may have affected the Australian state's choice of tax rates.

Keywords: Fiscal federalism, federal grants, equalisation, marginal cost of funds, taxation

Suggested Citation

Dahlby, Bev and Warren, Neil, The Fiscal Incentive Effects of the Australian Equalisation System (September 2002). Atax Discussion Paper No. 10, Available at SSRN: https://ssrn.com/abstract=623644 or http://dx.doi.org/10.2139/ssrn.623644

Bev Dahlby (Contact Author)

University of Alberta - Department of Economics ( email )

8-14 Tory Building
Edmonton, Alberta T6G 2H4
Canada
403-492-5437 (Phone)

Neil Warren

UNSW Business School ( email )

Sydney, NSW 2052
Australia

HOME PAGE: http://www.business.unsw.edu.au/our-people/neilwarren