The incentive effects of equalization grants on tax policy: evidence from Canadian provinces

Author
Ferede, Ergete
Faculty Advisor
Date
2017
Keywords
tax policy , intergovernmental grants , marginal cost of public funds , fiscal federalism
Abstract (summary)
This article provides an empirical analysis of the incentive effects of equalization grants on business and personal income tax rates using panel data from Canadian provinces. We exploit the discontinuity in the equalization grant allocation formula to identify the exogenous income and incentive effects of equalization grants on tax policy. Our empirical results indicate that equalization grants provide provincial governments an incentive to raise their business and personal income tax rates. The results also suggest that if the equalization program in its current form was abandoned, then business and personal income tax rates would be lower in the grant receiving provinces.
Publication Information
Ferede, E. (2017). “The Incentive Effects of Equalization Grants on Tax Policy: Evidence from Canadian Provinces.” Public Finance Review 45(6): 723-747
Notes
Item Type
Article
Language
English
Rights
All Rights Reserved