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This paper studies the revenue and base effects of local property and business tax hikes using a natural experiment in the German state of North Rhine-Westphalia (NRW). Due to a reform of the local equalization scheme in 2003, a set of municipalities in NRW increased their local tax rates by one to two percentage points while the remaining municipalities kept their rates constant. Using this variation across municipalities and over time to implement a difference-in-differences design covering the period 1995-2010, I find that property tax hikes have a revenue elasticity of unity and no adverse base effects. Business tax hikes have no discernible base effects but also no statistically significant effect on revenues. Furthermore, the results suggest that the tax hikes have no effect on broader economic outcomes such as local employment, firms´ wage bill, and property prices. Overall, increasing local tax rates by one to two percentage points does not seem to affect the local economy adversely.

Las democracias occidentales han experimentado en los últimos años un aumento continuado de la abstención electoral y un descenso significativo en las tasas de afiliación en los partidos políticos y los grupos de interés. El desinterés, el escepticismo y el distanciamiento de la ciudadanía respecto a la política tradicional, basada en la participación a través de los partidos, las grandes organizaciones corporativas y las elecciones apuntan hacia un cierto estancamiento del modelo democrático vigente. Se necesitan políticas más participativas y estratégicas, no para salir coyunturalmente de la «crisis», sino para mejorar la capacidad de adaptación a una nueva época. Aceptar la complejidad en las formas de gobierno, supone intentar articular la diversidad y la fragmentación con mecanismos de coordinación o integración. Mendebaldeko demokrazietan azken urte hauetan hauteskundeetako abstentzioa hazten ari da, eta partidu politikoetako eta interes-taldeetako afiliazio-tasak jaisten. Herritarrek interes eza, eszeptikotasuna eta urruntasuna agertzen dute politika tradizionalaren aurrean, partiduen, erakunde korporatibo handien eta hauteskundeen bidezko parte-hartzean oinarritzen den politikan, hain zuzen; egoerak horrek eredu demokratiko nagusiaren nolabaiteko geldialdia uzten du agerian. Politika konpartituagoak eta estrategikoagoak behar dira, ez «krisiari» unean uneko irtenbide bat emateko, baizik eta garai berri batera egokitzeko ahalmena hobetzeko. Gobernu-formen konplexutasuna onartzeak dibertsitatea eta fragmentazioa koordinazio- edo integrazio-mekanismoen bidez egituratu beharra dakar berekin. In recent years Western democracies have witnessed an increase in election abstention and a significant drop in affiliation rates for both political and concerning parties. The lack of interest, the scepticism and the separation of citizens from traditional politics, based on the participation through the parties, big corporate organizations and elections point towards a certain stagnation of predominant democratic models. More strategic and shared policies are needed, not as a means to a quick get out of the crisis but as a means to better the adaptation ability of a new stage. Accepting the complexity in the way the government do things, means articulating the diversity and the fragmentation mechanisms of coordination or integration.

This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.

We evaluate the effect of a politician’s age on political governance, reelection rates,and policies using data on Italian local governments. Our results suggest that younger politicians are more likely to behave strategically in response to election incentives: they increase spending and obtain more transfers from higher levels of government in preelection years. We argue that is a sign of stronger career concerns incentives. The results are robust to adopting three different identification strategies: fixed-effects regression, standard regression discontinuity design, and an augmented regression discontinuity design that controls for residual heterogeneity.

Dramatic declines in capital tax rates among U.S. states and European countries have been linked by many commentators to tax competition, an inevitable "race to the bottom," and underprovision of local public goods. This paper analyzes the reaction of capital tax policy in a given U.S. state to changes in capital tax policy by other states. Our study is undertaken with a novel panel data set covering the 48 contiguous U.S. states for the period 1965 to 2006 and is guided by the theory of strategic tax competition. The latter suggests that capital tax policy is a function of "foreign" (out-of-state) tax policy, preferences for government services, home state and foreign state economic and demographic conditions. The slope of the reaction function–the equilibrium response of home state to foreign state tax policy–is negative, contrary to casual evidence and many prior empirical studies of fiscal reaction functions. This result, which stands in contrast to most published findings, is due to two critical elements–allowing for delayed responses to foreign tax changes and for heterogeneous responses to aggregate shocks. Omitting either of these elements leads to a misspecified model and a positively sloped reaction function. Our results suggest that the secular decline in capital tax rates, at least among U.S. states, reflects synchronous responses among states to common shocks rather than competitive responses to foreign state tax policy. While striking given prior empirical findings, these results are fully consistent with the qualitative and quantitative implications of the theoretical model developed in this paper and presented elsewhere in the literature. Rather than "racing to the bottom," our findings suggest that states are "riding on a seesaw." Consequently, tax competition may lead to an increase in the provision of local public goods, and policies aimed at restricting tax competition to stem the tide of declining capital taxation are likely to be ineffective.

Formal fiscal rules have been introduced in many countries throughout the world. While most studies focus on the intra-jurisdictional effects of fiscal rules, vertical effects on the finances of other levels of government have yet to be explored thoroughly. From a theoretical point of view, vertical effects could work in opposite directions, i.e., improve and burden other levels’ finances. This paper is the first formally investigating the influence of Swiss debt brakes, which primarily target the cantonal level, on municipal finances. A difference-in-differences estimation (two-way fixed effects) of aggregated and disaggregated local panel data provides unique evidence that suggests little effect of budget constraints at the cantonal level on average municipal finances and fiscal decentralization. The results are confirmed by a wide range of robustness tests. If anything, cantonal debt brakes are associated with improved local finances and fiscal centralization. These findings run counter to popular fears and emphasize the possibility of positive spillover effects of fiscal rules.

The existence of either "horizontal" fiscal externalities, in which changes in one jurisdiction's policies affect the government budget of other jurisdictions and therefore the utility of its residents or "vertical" externalities, in which changes in one level of government's policies affect the budget of another level of government, may lead to non-optimal government policies. These fiscal externalities, then, suggest the possibility of corrective policies. The focus here is on vertical externalities. In a growing literature, these externalities are associated with the extent that tax bases are shared or "co-occupied" by two different levels of government. Given that co-occupancy is the cause of or at least exacerbates the externality, I consider, the optimal "assignment" of the tax base and, more specifically, whether the co-occupancy of tax bases is desirable. Specifically, I examine the optimal extent of the tax base of a lower level of government (local) and a higher level (state) in a hierarchical system of governments. The co-occupancy of the tax base influences the magnitude and possible the direction of "vertical" fiscal externalities associated with the taxes of one or both of the levels of government. Using a model in which there is a continuum of commodities, each with the same demand characteristics, I formally consider whether, as has been asserted in a number of studies, whether it is optimal to eliminate all co-occupancy between the tax bases of the two levels of government. While I find that it is indeed not optimal to have co-occupancy in the tax base in the absence of other corrective policies for the fiscal externality, eliminating co-occupancy does not, in general, eliminate fiscal externalities, meaning that tax rates can still be above or now below the socially-optimal level. Thus elimination of co-occupancy in the tax base is not a substitute for a policy such as intergovernmental matching grants which directly eliminates fiscal externalities. If alternative policies are available such as matching grants that do eliminate fiscal externalities and governments are restricted to set the same tax rate on all commodities in their base, the optimal division of the tax base changes dramatically -- optimality requires both governments tax the entire base. (JEL H77 - Intergovernmental Relations; Federalism)

The use of contractual engineering to create channels of credit intermediation outside of the realm of banking regulation has been a recurring activity in Western financial systems over the last 50 years. After the financial crisis of 2007 and 2008, this phenomenon, at that time commonly referred to as ‘shadow banking’, evoked a large-scale regulatory backlash, including several specific regulatory constraints being placed on non-bank financial institutions (NBFI). This paper proposes a different avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation. Rather than engaging in the proverbial race between hare and hedgehog that is emerging with increasingly specific regulation of particular contractual arrangements, this paper argues for a normative approach to supervision. We outline this approach in detail by showing that regulators should primarily analyse the allocation of tail risk inherent in the respective contractual arrangements. Our paper proposes to assign regulatory burdens equivalent to prudential banking regulation, in case these arrangements become only viable through indirect or direct access to an (ad hoc) public backstop. In order to make the pivotal assessment, regulators will need information about recent contractual innovations and their risk-allocating characteristics. According to the scholarship on regulatory networks serving as communities of interpretation, we suggest in particular how regulators should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the real-world implications of evolving transactional structures. This paper then uses the rise of credit funds as a non-bank entities economically engaged in credit intermediation to apply this normative framework, pointing to recent contractual innovations that call for more regulatory scrutiny in a multipolar regulatory dialogue.

We analyse how spillover effects may affect the choice of a federal tax rate in a federal country with vertical tax externalities. Our main result shows under which conditions the federal tax rate with spillover effects is lower or higher than the federal tax rate without spillover effects. The standard result on inefficiently high tax rates due to vertical tax externalities can be modified by the reaction of the federal government to the horizontal externality due to spillover effects.

Using a unique set of electoral rules present in the Austrian state of Vorarlberg, we explore the question ofwhether direct election of the mayor affects the size of local governments. Using difference-in-differences estimation and propensity score matching, we find evidence that direct elections of the mayor are associated with less expenditure on public administration and public personnel and higher expenditure in the visible categories of spending, i.e., transportation infrastructure and economic subsidies to firms and individuals.

In the wake of the euro area crisis, the debate on instruments to deepen economic integration among its members has intensified, among others putting forward a fiscal stabilization capacity for Economic and Monetary Union (EMU) members. Contributions made so far to further this idea have mostly concentrated on the expenditure side and possible stabilization properties. This analysis reviews the most important proposals and discusses design choices and institutional conditions to develop the revenue side of such a fiscal instrument.

We study fiscal spending by supranational unions, where participation is voluntary and countries bargain over contributions to and the allocation of a central budget. We explore the link between the allocation and nations’ contributions that occurs since bargaining power is endogenous, and generically causes inefficiency. Interestingly, redistribution arises endogenously, despite nations being purely self-interested. However, there exists a trade-off between increasing equality and decreasing efficiency, which becomes more severe as the centralized budget increases. We also analyze partial ex-ante commitment through alternative decision-making institutions: Both majority rule and exogenous tax rules can improve efficiency.

We analyze whether voters value local political representation by exploiting municipal mergers, which increase the number of candidates available to voters and intensify political competition. In the Finnish open-list proportional representation system, voters rank the candidates within parties, and thus, concentrating votes to local candidates increases the extent of local representation. Using a difference-in-differences strategy, we find that the vote distributions become more concentrated in municipalities less likely to gain local representation after the mergers. Moreover, the effect is much larger in municipalities where the benefits of local representation to voters are large. The latter result disentangles voters? responses from the responses of other political actors. The results are important also for designing local government mergers, which are an important policy tool in many countries. They highlight that concerns over deteriorating local democracy due to mergers have merit, because voters have preferences for local representation. At the same time, the vote concentration patterns we find alleviate these concerns.

The recent scholarship has made distinction between two generations of literature in fiscal federalism. The study has critically analysed the first generation theory and second generation theory of fiscal federalism. Though the latter approaches the problem of fiscal federalism from different perspectives, it does not challenge but complements the former. The paper argues that the second generation theory is an ongoing effort to build a theory in response to fiscal challenges facing a number of countries. In brief, it is aimed at explaining present-day institutional arrangements which can no longer be adequately explained by employing the first generation theory.

This paper examines how fiscal incentives affect the policy choices of local governments in the context of China. Based on exogenous changes in the intergovernmental revenue-sharing scheme, we construct a simulated instrumental variable to resolve the endogeneity problem. We find evidence that local governments shifted their efforts from fostering industrial growth to “urbanizing” China, i.e., to developing the real estate and construction sectors, when their retention rate of enterprise tax revenue was reduced. The increase from the new revenue source compensated for half of the losses in revenue that resulted from the reassignment of fiscal rights. The reassignment had also the effect of retarding the industrial growth of domestically-owned firms in particular.

We analyse free-riding behaviour of Finnish municipalities prior to voluntary municipal mergers. The merger process creates a temporary common pool problem, because of a delay from the initial decision to the actual merger during which municipalities stay autonomous. Using a difference-indifferences strategy, we find that the stronger free-riding incentive a municipality faced the more it increased its debt and spent its cash reserves. These funds were spent mostly on investments and current expenditures. The results can be attributed to the "law of 1/n" rather than to responding to an anticipated loss of political power or voluntary transfers between merging municipalities. Besides providing a test of the law of 1/n, our results suggest that local jurisdiction mergers are likely to involve a substantial (one-time) cost due to free-riding. This leads to two policy implications. First, during a merger process, some financial constraints on the local level may be a good idea to mitigate common pool problems. Second, for the merger policy to achieve the goal of decreasing public spending without reducing service quality, the scale economies need to be fairly large. Our results should be of wider interest, not only because mergers are used extensively in various countries, but also because common pool problems are present in many other contexts, such as (local) governments bail outs.

Ziel des vorliegenden Beitrags ist die Darstellung der Verteilung von Kriminalität in Deutschland. Dazu wird die polizeiliche Kriminalstatistik so aufbereitet, dass sowohl das Dunkelfeld zentraler Deliktgruppen als auch deren Schweregrad Berücksichtigung finden. Die vorgeschlagenen Wege beruhen auf eigenen aktuellen Befragungsdaten. Die verschiedenen Berechnungsvarianten bestätigen zwei deutliche Trends in der Bedrohungslage: Zum einen existiert ein Nord-Süd-Gefälle, die nördlichen Regionen weisen ein deutlich höheres Bedrohungsniveau auf. Zum anderen beobachten wir Unterschiede zwischen Stadt und Land, da die städtische Bevölkerung deutlich stärker von alltäglichen direkt auf das Individuum einwirkenden Kriminalitätsformen betroffen ist. Kleinere Veränderungen werden jedoch durchaus sichtbar und wirken sich mit dem Fokus auf einzelne Bundesländer merklicher aus. This report aims to show the distribution of crime in Germany. For this, police crime statistics (polizeiliche Kriminalstatistik - PKS) are treated so that they integrate dark figures (unreported crime) of crime types along with their specific grade of burden. The different treatments are based on own recent survey data. Two major trends are confirmed by both treatment methods: First, there is a north- south divide, with the northern regions experiencing a far higher risk of crime. Second, rural/urban differences can be accounted for by the higher levels of everyday crime that affect citizens of towns and cities. These slight differences and changes are more evident and meaningful in state-to-state comparisons rather than looking at Germany as a whole.

We study the direct and spillover effects of local state capacity using the network of Colombian municipalities. We model the determination of local and national state capacity as a network game in which each municipality, anticipating the choices and spillovers created by other municipalities and the decisions of the national government, invests in local state capacity and the national government chooses the presence of the national state across municipalities to maximize its own payoff. We then estimate the parameters of this model using reduced-form instrumental variables techniques and structurally (using GMM, simulated GMM or maximum likelihood). To do so we exploit both the structure of the network of municipalities, which determines which municipalities create spillovers on others, and the historical roots of local state capacity as the source of exogenous variation. These historical instruments are related to the presence of colonial royal roads and local presence of the colonial state in the 18th century, factors which we argue are unrelated to current provision of public goods and prosperity except through their impact on their own and neighbors' local state capacity. Our estimates of the effects of state presence on prosperity are large and also indicate that state capacity decisions are strategic complements across municipalities. As a result, we find that bringing all municipalities below median state capacity to the median, without taking into account equilibrium responses of other municipalities, would increase the median fraction of the population above poverty from 57% to 60%. Approximately 57% of this is due to direct effects and 43% to spillovers. However, if we take the equilibrium response of other municipalities into account, the median would instead increase to 68%, a sizable change driven by equilibrium network effects.

The problem of funding relief expenditure has been recognized by every finance commission since the second because of which each of the successive finance commission has made recommendations with regard to provision for relief expenditure out of the revenues of the states and the extent of support to be extended by the Central Government to the State Government (GoI, 2004). The centre and the states contribute to the Calamity Relief Fund (CRF) to the extent of 75 percent and 25 percent respectively. However, the Twelfth Finance Commission mentions that the states have suggested reducing the contribution of the states to the CRF which shows that the states are trying to reduce their responsibility by reducing their contribution. Rajasthan has demanded successively increased funding from centre (GoR, 2014) as it is situated at most peculiar geographical conditions in term of drought vulnerability. The present study shows that Rajasthan Government largely depended on the Centre for relief related expenditure which has increased over the years while the sacrosanct aim of ‘drought proofing’ is still elusive. In the period of study from 1990-91 to 2014-15, Rajasthan experienced drought two times in 2002-03 and 2009-10 while the scarcity conditions prevailed in the state in one or another area all the time for which state demanded help from centre on regular basis. Mostly the relief works get financed through the help received from the centre and state allocation. However, the present study shows that the amount received for relief remains largely unused and is getting accumulated in the state budget instead of being used to manage the prevailing scarcity and achieving the coveted goals of drought proofing.

Die anstehende Erbschaftsteuerreform könnte die Steuereinnahmen der Länder längerfristig erhöhen, sofern die weitgehenden Steuerbefreiungen für Unternehmensübertragungen reduziert werden. Das Mehraufkommen würde sich vor allem in Hamburg und den wohlhabenden westdeutschen Flächenländern konzentrieren. Dies verstärkt die Umverteilung im Länderfinanzausgleich. Um die großen Unterschiede beim Aufkommen von vornherein zu nivellieren, bietet sich eine Verteilung nach Einwohnern statt nach dem örtlichen Aufkommen in den Ländern an. Grundsätzlich ähnliche Wirkungen hätten eine Übertragung der gesamten Erbschaftsteuereinnahmen auf den Bund und eine Kompensation der Länder mit höheren Anteilen bei der Umsatzsteuer oder bei der Einkommensteuer. Dadurch würden die Anreize der Länder zu einer weniger effektiven Erhebung der Erbschaftsteuer entfallen. Eine höhere Beteiligung an der Umsatzsteuer würde die Umverteilung durch den Länderfinanzausgleich stärker reduzieren. Eine höhere Beteiligung an der Einkommensteuer käme den wohlhabenden Ländern entgegen, die zumeist auch bei der Erbschaftsteuer überproportionale Einnahmen erzielen. Diese Länder könnten dann Erbschaftsteuerreformen leichter akzeptieren, die hohe Vermögen stärker belasten. The upcoming inheritance tax reform could increase state tax revenues in the longer term, provided that wide-ranging tax exemptions for business transfers are scaled down. The extra revenue would come mainly from Hamburg and the wealthy western German states. This would enhance revenue redistribution among the states of the fiscal equalization scheme. The major differences in revenue could be levelled out from the outset by redistributing revenues according to residents rather than regional incidence in the states. Transferring all inheritance tax revenues to the federal government and compensating states with higher revenue shares of VAT or personal income tax would essentially have a similar effect. This would then eradicate the incentive for states to less effective collection of inheritance tax. A greater share of VAT revenue would considerably reduce redistribution among the states by fiscal equalization. Greater participation in personal income tax revenues would accommodate the wealthier states which generate disproportionately higher revenues, also from inheritance tax. These states would then find it easier to accept inheritance tax reforms that put a higher burden on big fortunes.

Este trabajo pretende identificar los factores que pueden explicar el comportamiento de las Comunidades Autónomas (CCAA) con respecto a sus objetivos de estabilidad presupuestaria. A tal fin, se estima, para todas las CCAA y para el periodo 2003-2012, el grado de incumplimiento de cada comunidad con su objetivo de déficit en función del cumplimiento en los ejercicios previos y de un conjunto de variables relacionadas con factores macroeconómicos, políticos, presupuestarios e institucionales. De acuerdo con los resultados obtenidos, el incumplimiento anterior de una comunidad autónoma aumenta su incumplimiento en el ejercicio corriente, mientras que el incumplimiento previo del conjunto del nivel autonómico estimula el cumplimiento individual. En año electoral, el grado de incumplimiento con los objetivos de estabilidad será mayor. Lo contrario sucede si el presidente de la comunidad pertenece al PSOE. Finalmente, unos menores ingresos per cápita o unos mayores gastos primarios per cápita también favorecen el incumplimiento de las reglas fiscales autonómicas. El efecto de los ingresos es mayor que el de los gastos y este último parece que se debe más al funcionamiento del mercado político en cada comunidad autónoma que a cambios en las necesidades de gasto., This paper aims to identify factors that can explain the behaviour of the Autonomous Communities in relation to their budgetary stability objectives. For this purpose, it is estimated, for all regions and for the period 2003-2012, the degree of compliance of each community with its deficit target based on compliance in the previous exercises and a set of variables related to macroeconomic, political, budgetary and institutional factors. According to the results, the previous breach of an Autonomous Community increases non-compliance in the current period, while the previous breach of the whole regional level stimulates individual compliance. In election year, the degree of non-compliance with the objectives of stability will be higher. The opposite happens if the president of the community belongs to the PSOE. Finally, lower per capita revenues or higher per capita primary expenditures also favor the breach of regional fiscal rules. The revenue effect is greater than the expenditure one and this latter seems to be owed more to the functioning of the political market in each region than to changes in expenditure needs.

This discussion paper led to a publication in 'International Tax and Public Finance' . This paper analytically derives the conditions under which the slope of the tax reaction function is negative in a classical tax competition model. If countries maximize welfare, we show that a negative slope (reflecting strategic substitutability) occurs under relatively mild conditions. Simulations suggest that strategic substitutability occurs under plausible parameter configurations. The strategic tax response is crucial for understanding tax competition games, as well as for assessing the welfare effects of partial tax unions (whereby a subset of countries coordinate their tax rates). Indeed, contrary to earlier findings that have assumed strategic complementarity in tax rates, we show that partial tax unions might reduce welfare under strategic substitutability.

In the present paper we analyse for the first time as far as we know, the ancient Greek regional proto-federations, of free-democratic city-states. We examine their political institutions and policies, like common defense and external policy, military organization, representative federal bodies like popular assemblies, parliament, generals as military and political commanders, federal finance ministers etc., as well as their economic institutions and policies: Common currency, federal budget and federal revenues. We address in more detail as a case study the Aetolian Federation (Greek: Sympolitiae). Lastly, we compare this particular proto-federation with some of today's federal states and the European Union (EU) and conclude that in some respects the proto-federation was more advanced than the EU, and thus can serve as a benchmark in addressing current European issues. Our main findings indicate that the Aetolian league, in accordance to its regional neighbor, the Achaean League had managed to establish a variety of institutions and mechanisms of governance that secured a satisfactory level of 'balanced' development to its city-state members under a Pareto efficiency perspective. The Aetolian League also achieved an ideal balance between direct and indirect (representative) democracy, an issue that is of major importance for the further EU integration. To achieve this, it established a system of a cumulative sum referendum process which we nominate, 'the Aetolian and Achaean cumulative model of governance'. We argue that this model could offer reliable and stable solutions even in modern EU decision-making processes, when complex issues are difficult to reach in common outcomes. It seems that the Aetolian Confederation had also managed to achieve a perfect combination of a strong institutionalized central government under a democratic profile and attitude. In addition, we argue that the system of monetary policy that comprised by the parallel usage of both local and federal coins that used by the city-state members of the Aetolian Confederation, might be a prodigal example of how to surpass the negative effects of today's eurocrisis. Finally, we argue that the military organization of the League, could offer some ideas of how to create a would-be Federal Pan-European Armed Forces under the aegis of the EU.

The aim of this paper is to propose a model of fiscal equalization in Croatia. This paper tests the hypothesis of a lack of effectiveness of the existing fiscal equalization model compared to a model that would be based on alleviating the difference in the potential to collect revenue from the personal income tax and surtax. Fiscal inequalities of local government units are determined first under the current equalization system by calculating the Gini coefficients and graphically presented with Lorenz curves. Thereafter, a distribution of equalization grants is simulated based on the new (proposed) model. The effectiveness of the proposed model in alleviating the fiscal inequalities is determined in relation to the effectiveness of the current equalization system. It was found that the model based on equalizing the difference in the capacity to collect revenue from the personal income tax and surtax alleviates inequalities in fiscal capacities of local government units much better than the existing system at the same cost. The main conclusion is that the fiscal equalization in Croatia should urgently be redesigned in order to improve efficiency and fairness, but also the transparency and credibility of the equalization system.

Empirical models of retrospective voting primarily employ standard monetary and financial indicators to proxy for voters’ utility and to explain voters’ behavior. We show that subjective well-being explains variation in voting intention that goes beyond what is captured by these monetary and financial indicators. For example, individuals who are satisfied with their life are 1.6% more likely to support the incumbent; by contrast, a 10% increase in family income leads to a 0.18% increase in an individual’s support of the incumbent. We use difference-in-differences analysis to identify how voter intention is affected by a negative shock to well-being: the death of a spouse. Individuals who experience the death of a spouse are around 10% less likely than those in the control group to support the incumbent. The results hold even if elected officials’ policies (health care, social welfare) cannot reasonably be blamed for the death.

Economic models of Fiscal Federalism, according to different settings, are generally linear and static, offering unique and deterministic solutions starting with simplifying assumptions. This paper rises from the idea to investigate how the decision-makers, abandoning their traditional economic models and focusing, instead, the attention on innovative components of evolutionary economics, can achieve better performance results, to organize and to optimize an economic system based on Fiscal Federalism. For this purpose, Fiscal Federalism must be understood as a dense network of economic relationships between different complex adaptive and co-evolving systems, the jurisdictions, linked by strong interdependencies. A better understanding of the links between interdependence will be provided by the Kauffman’ NK-model. The relevance of the NK-model in the study of economic organizations has been detected several times in the literature. These studies, however, neglect the problem of co-evolution, which instead underpins this paper.

In this paper we offer a comprehensive and updated review of the impact of fiscal decentralization on the economy, society and politics. We start with the examination of two crucial and yet unsolved issues in the literature on decentralization: its proper measurement and the potential endogeneity of fiscal decentralization with many of the variables of interest we are trying to investigate. Then we discuss the main findings in the existing literature on the effects of decentralization on a relevant list of socio-economic variables. The impact of fiscal decentralization reforms on political institutions is also considered. Complete answers to the many questions on the impact of fiscal decentralization are not likely to be certain but overall there are reasons to be optimistic about the overall positive impact of the decentralized systems that have been introduced all over the world in the past several decades. The survey offered in this paper by necessity has to be selective but it presents a balanced view of what is known and what is not yet known opening room for further research and practice on fiscal decentralization.

Sacchi A. and Salotti S. The influence of decentralized taxes and intergovernmental grants on local spending volatility, Regional Studies. This paper studies what affects the volatility of sub-central public spending in 20 Organisation for Economic Co-operation and Development (OECD) countries. The evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure. On the other hand, the volatility of local tax revenues – mainly that of property taxes – exerts the opposite effect. These findings suggest that making local governments rely more on grants than own tax revenues adversely affects their spending stability. Allowing them to levy autonomously taxes relying on responsive tax bases provides incentives to smooth their expenditure.

In a multi-country model with mobile capital and global pollution this paper analyzes the stability of self-enforcing environmental agreements (IEAs) when the coalition formed by the signatory countries plays Nash. In accordance with previous environmental literature we show that there exists a unique self-enforcing IEA consisting of two or three signatory countries if emissions tax rates are strategic substitutes. However, emissions tax rates are strategic complements if the pollution is not too detrimental. In that case we find very small self-enforcing IEAs, as before, but now the socially optimal agreement among all countries may be selfenforcing as well. Special emphasis is placed on the investigation and interpretation of the conditions which render stable the grand coalition.

The empirical literature investigating the role of key features of local governments regarding decisions on consolidation tends to use a dummy dependent variable that takes 1 if both adjacent local governments decide to merge and 0 if one of them does not approve consolidation. Under this estimation method, however, it is difficult to know which governments refused to consolidate, as consolidation was not realized. The current study empirically tests the effects of economies of scale, population size, heterogeneity of preferences, and financial factors on municipal preferences for consolidation. It uses voting data from Japanese local referenda to identify preferences of specific individual municipalities, thus allowing a richer examination of local government behavior. The results obtained herein are as follows. Municipalities that could enjoy large economies of scale from consolidation prefer consolidation, while large and small municipalities are likely to merge. Moreover, municipalities receiving large unconditional grants from the central government are unlikely to merge.

New democracies experience greater electoral fraud and more clientelistic spending than established democracies. This paper shows that the body of appointed local officials that a new democracy inherits from the previous regime is a key determinant of the extent of these practices. With a unique dataset from the first post-Soeharto election in Indonesia, I show that the alignment of electoral results between village and district levels is considerably stronger for villages with appointed village heads than for those with elected village heads. I present a model that provides an intuitive interpretation of these results: Appointed officials have stronger incentives to influence voters because of their political career concerns.

Trust in public institutions and public policies are generally perceived as a precondition for economic recovery in times of recession. Recent empirical evidence tends to find a positive link between decentralization and trust. But our knowledge about whether decentralization – through increased trust – improves the perception of the delivery and effectiveness of public policies is still limited. In this paper we estimate the impact of fiscal and political decentralization on the perception of the state of the education system and of health services, by using the 2002, 2004, 2006 and 2008 waves of the European social survey. The analysis of the views of 160,000 individuals in 31 European countries indicates that while the effect of fiscal decentralization on the perception of the state of the health and education system is unambiguously positive, political decentralization affects citizen’s satisfaction with education and health delivery in different ways. The influence of political decentralization, however, is highly contingent on whether we consider the capacity of the local or regional government to exercise authority over its citizens (self-rule) or to influence policy at the national level (shared-rule).

This paper tried to examine the level of cointegration among various nations across the continents in regard to the globalisation. Also here attempt is made to analyse the nature of inter and intra continental variation in globalisation over time. The proximity and convergence over time in terms of the growth of globalisation is also examined by using a panel data set over a period of 1970 to 2007. The outcome reveals the presence of co-integration among the selected nations despite the fact that the European nations are more co-integrated than the other continents. It is followed by the countries in Africa and Asia. The proximity matrices of overall globalisation and political globalisation provided some important indications that geographical proximity, economic necessities, cultural and political understanding play crucial role in determining the clusters of countries in terms of globalisation or choice of the countries to open with other nations for trade, cultural exchange etc.

The effectiveness of public funds in increasing public employment has long been a question on public and labor economists’ minds. In most federal countries local governments employ large fractions of the working population, meaning that a tool for stimulating local public employment can substantially affect the overall unemployment level. This paper asks whether general grants to lower-level governments have the potential of doing so. Applying the regression kink design to the Swedish grant system, we are able to estimate causal effects of intergovernmental grants on personnel in different local government sectors. Our robust conclusion is that personnel in the central administration increased substantially after a marginal increase in grants, but that such an effect was lacking both for total personnel and personnel in child care, schools, elderly care, social welfare and in technical services. We suggest several potential reasons for these results, such as heterogeneous treatment effects and bureaucratic influence in the local decision-making process.

Nach Ansicht von René Geißler, Bertelsmann Stiftung, sind die Voraussetzungen für eine Neuverhandlung der bundesstaatlichen Finanzbeziehungen »nicht die Schlechtesten«, da auch der Koalitionsvertrag bereits einige finanzielle Zugeständnisse und Verhandlungsaufträge enthalte.

In this contribution we are exploring to which extent municipalities depend on transfers and financing through debt. Answering this question allows us to draw conclusions about the capacity of municipalities to adapt their fiscal policy in response to unexpected fiscal shocks to municipal finances. The descriptive analysis of vertical fiscal imbalances in the municipalities of the Swiss canton of Zurich provides us with mainly two results. First, vertical fiscal imbalances have increased over time. Over the period of interest (1986 – 2012), the dependency of municipalities on transfers and debt financing has increased on average. Second, vertical fiscal imbalance varies depending on whether primary and/or secondary school is being provided by a municipality.

Lars P. Feld, Universität Freiburg und Walter-Eucken-Institut, Freiburg, und Jan Schnellenbach, Walter-Eucken-Institut, Freiburg, und Universität Heidelberg, formulieren einen Reformvorschlag, der den Finanzausgleich in seiner Gesamtheit deutlich anreizorientierter ausgestaltet.

Thomas Lenk, Universität Leipzig, betont, dass der bundesstaatliche Finanzausgleich auch zukünftig die Konturen des kooperativen Föderalismus bewahren und auf den Erhalt der Solidargemeinschaft zwischen finanzkräftigen und finanzschwachen Ländern hinwirken muss.

Magyarországon immár lezártnak tekinthető a helyi önkormányzati finanszírozási rendszer 1990-2012 közötti átalakítása, ami tanulságos példája a pénzügyi föderalizmus gyakorlatba való átültetésének. A rendszer átalakítása mellett sokan települési csődökkel érveltek, pedig a korábbi gazdasági szabályozó mechanizmus nem omlott össze. Ellenkezőleg: a decentralizáció kiépítésének végig jó alapjául szolgált, viszont akár tankönyvi példát is nyújt arra, hogy a helyi közszolgáltatások célszerű megszervezéséhez szükséges integrációk kialakítása és finanszírozási tartalmuk felépítése nélkül a rendszer csak korlátozottan működhet. Az összevonások, valamint a feladatok nagyobb egységekbe telepítése előtt közigazgatás-politikai korlát állt, amelyet önmagában a pénzügyi szabályozással nem lehet átlépni. E tehetetlenségi hatás azonban elegendő ürügyként szolgált a helyi-területi feladattelepítési és finanszírozási rendszer gyökeres átrendezéséhez. Journal of Economic Literature (JEL) kód: H70, H77, H11., Two decades of decentralization in Hungary present a good case of how the administrative and regulatory environment should (or should not) be adjusted to fiscal conditions. In the early transition years, fiscal decentralization was followed by political decentralization and transfer of public functions to municipal level, but this model did not meet all the requirements for an effective, efficient system of inter-governmental finances. Second-generation decentralization theories showed that intergovernmental fiscal relations needed to be matched with appropriate political and administrative mechanisms. The conflicts in Hungary centred round the optimal LGO size: institutional forms were not adjusted to the requirements of efficient local service provision. The paper uses a disaggregated database of local-government revenues and expenditures to present the inability of small municipalities to deliver the mandatory and merit-based service assigned to all; unmanageable inequalities evolved in local revenue-raising potential; disparities between assignment of services and own revenues led to targeted intervention through the transfer system; local finances were heavily influenced by political cycles. Since 2013, all these factors have prompted extreme re-centralization without consideration of alternative options for establishing larger, integrated municipal structures. The model will survive while this new system remains financially viable, but any fiscal difficulties at local or national level will again raise pressure to adjust to the fiscal and political components of a system that is properly decentralized.

Spätestens im Jahr 2020 müssen alle Länder ihre Haushalte strukturell ausgleichen. Zeitgleich muss wegen des Auslaufens der jetzigen Regelungen eine Neuordnung des nach Artikel 107 Grundgesetz (GG) verpflichtend vorgegebenen Finanzausgleichs in Kraft getreten sein. Von einem angemessenen Ausgleich der unterschiedlichen Finanzkraft der Länder im Sinne des Artikels 107 (2) GG kann dabei nur dann gesprochen werden, wenn alle 16 Länder prinzipiell (d. h. bei vollständiger Ausschöpfung ihrer Konsoli dierungsmöglichkeiten) in die Lage versetzt werden, die Schuldenbremse einzuhalten. Eine Analyse der jeweiligen Ausgangssitua tion des Jahres 2012 der einzelnen Länder (einschließlich ihrer Kommunen) und der zur Einhaltung der Schuldenbremse im Jahr 2020 notwendigen Konsolidierungspfade zeigt, dass eine signifikante Reduzierung der Ausgleichsintensität des föderalen Finanzausgleichs kaum möglich sein dürfte. Denn schon bei einer Beibehaltung der jetzigen Ausgleichsintensität dürften mehrere Länder nicht bzw. nur unter äußersten Anstrengungen in der Lage sein, ihre Haushalte strukturell auszugleichen. Bei der anstehenden Neuordnung des Finanzausgleichs geht es deshalb primär nicht um eine Reduzierung der Ausgleichsintensität, sondern vor allem um mehr Transparenz und ökonomische Rationalität. Die dringend notwendige Einführung von Zuschlagsrechten bei der Einkommensteuer hat nur dann eine Chance auf Umsetzung, wenn sie nicht mit einer gleichzeitigen Absenkung der Ausgleichsintensität verbunden wird.

The dispute over the manner of computing fiscal imbalances is not a technical one. Different methods serve different purposes and these purposes are political rather than simply economic. They differ basically in the consideration that territorial jurisdictions may merit. This is whether they are being seen much more than simply a pure geographical aggregation of individuals and their net fiscal residuals. Even for those authors who limit those imbalances as the result of personal redistributive fiscal flows, our paper shows that this does not seem to happen in Spain. Indeed, on the expenditure side, we do not observe a systemic pattern for the regional flows that properly matches personal income differences. Regions with similar income levels receive clearly discretional resources from the central government. This is the case not just for the monetary flow method, but also for the tax benefit incidence approach, despite the way in which the externalities of what are assumed to be ‘public goods’ spills over. In order to test whether this bias is political, purely random, or the result of a structural agglomeration or scale economies effect, we call for more data analysis. We need for a robust estimation of those factors a panel data approach to the composition of the observed imbalances. Transparency in this sense is the best strategy for refocusing the fiscal territorial debate in Spain.

Auch Joachim Ragnitz, ifo Dresden, sieht die Chance, durch die anstehenden Neuverhandlungen der Bund-Länder-Finanzbeziehungen ein in sich konsistentes System zu beschließen. Er plädiert für einen Ersatz des horizontalen Ausgleichssystems durch ein vertikales Zuteilungssystem.

Regelmäßig wird von Seiten der Geberländer im deutschen Länderfinanzausgleich der Vorschlag vorgebracht, das Land Berlin in ein „direktes Bundesgebiet" umzuwandeln, das nach dem Vorbild von Washington,D. C. direkt vom Bund finanziert werden sollte. Begründet wird dies mit sogenannten „Hauptstadtlasten", für die dann der Bund und nicht die Länder aufkommen sollten. Im vorliegenden Beitrag untersuchen die Autoren die fiskalischen und demokratiepolitischen Auswirkungen dieses Reformvorschlages, insbesondere mit Blick auf den Länderfinanzausgleich. Es zeigt sich, dass sich dieser Vorschlag für die Geberländer im Finanzausgleich unter dem geltenden Finanzausgleichsregime zu einem regelrechten finanziellen „Bumerang" entwickeln könnte – die Geberländer bei einem direkten Bundesgebiet Berlin also stärker finanziell belastet wären als heute. Dieses paradoxe Ergebnis rührt daher, dass die schwache Wirtschafts- und Finanzkraft Berlins auch bei einer Umwandlung in ein Bundesgebiet unverändert fortbestünde und der nunmehr finanziell zuständige Bund durch einen höheren Anteil an der Umsatzsteuer kompensiert werden müsste. Die Autoren zeigen abschließend, dass überdies auch gewichtige demokratie- und rechtspolitische Bedenken gegen den Reformvorschlag sprechen.

This paper studies the policy impact of civil service regulations, exploiting reforms undertaken by US state governments throughout the twentieth century. These reforms replaced political patronage with a civil service recruited based on merit and protected from politics. I find that state politicians respond to these changes by spending relatively less through the reformed state-level bureaucracies. Instead, they allocate more funds to lower level governments. The reallocation of expenditures leads to reduced long-term investment by state governments. (JEL D73, H72, H77, H79)

Wolfgang Renzsch, Universität Magdeburg, weist auf die Probleme bei der Bestimmung des Finanzbedarfs der Länder und Gemeinden hin.

In this paper, we compare endogenous environmental policy setting with centralized and decentralized governments when regions have comparative advantages in different polluting goods. We develop a tworegion, twogood model with interregional environmental damages and perfect competition in product markets, where both regions produce both goods. Despite positive spillovers of pollution across regions, the model predicts that decentralization may lead to weaker or stricter environmental standards or taxes, depending on the degree of regional comparative advantage and the extent of transboundary pollution. This suggests that federalism can lead to either a race to the bottom or a race to the top, without relying on inefficient lobbying efforts or capital competition.

En este trabajo se ofrece una panorámica de las evaluaciones que las CCAA de régimen común han hecho públicas en marzo de 2014 sobre el modelo de financiación autonómica aprobado en 2009 y sobre su aplicación por la administración central. Para ello, la exposición se organiza a partir del análisis sucesivo de los principios de suficiencia, equidad horizontal y autonomía. El trabajo se complementa con una valoración de los resultados del modelo entre 2009 y 2012 y concluye con las propuestas de reforma sobre las que, aparentemente, el consenso autonómico es mayor., This paper summarizes the judgments expressed by Spanish Autonomous Communities in March 2014 on the regional financing model passed in 2009 and its implementation by the central government. With this aim, the article is organized around the principles of sufficiency, horizontal equity and autonomy. The analysis is complemented by our own assessment of the model results between 2009 and 2012 and concludes with those reform proposals on which consensus among regions is apparently greater.

André W. Heinemann, Universität Bremen, sieht die Chance, die bundesstaatliche Finanzverteilungsarchitektur durch den Abbau heute nicht mehr begründbarer Finanzströme zu entrümpeln, durch die Bündelung gleichgerichteter Finanzströme zu vereinfachen und durch Reduzierung des Finanzstromumfangs die Übersichtlichkeit des Gesamtsystems zu erhöhen.

Michael Thöne, Finanzwissenschaftliches Forschungsinstitut an der Universität zu Köln, stellt einen Finanzausgleich, der das Attribut »zukunftsfest« verdient, vor.

This paper puts forward a framework for evaluating the effects of governmental decentralization on the shadow economy and corruption. The theoretical analysis demonstrates that decentralization exerts both a direct and an indirect impact on the shadow economy and corruption. Firstly, decentralization helps to mitigate government-induced distortions, thus limiting the extent of corruption and the informal sector in a direct way. Secondly, in more decentralized systems, individuals have the option to avoid corruption by moving to other jurisdictions, rather than going underground. This limits the impact of corruption on the shadow economy and implies that decentralization is also beneficial in an indirect way. As a result, our analysis documents a positive relationship between corruption and the shadow economy; however, this link proves to be lower in decentralized countries. To test these predictions, we developed an empirical analysis based on a cross-country database of 145 countries that includes different indexes of decentralization, corruption and shadow economy. The empirical evidence is consistent with the theory. Results are robust and significant even after controlling for the endogeneity bias.