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

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