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    Inter-temporal fiscal equalization and per capita output in a federation

    245378_245378.pdf (544.4Kb)
    Access Status
    Open access
    Authors
    Chan, Felix
    Petchey, Jeffrey
    Date
    2016
    Type
    Working Paper
    
    Metadata
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    Citation
    Chan, F. and Petchey, J. 2016. Inter-temporal fiscal equalization and per capita output in a federation, Working Papers The Centre for Research in Applied Economics (CRAE) Series in Public Economics, Curtin University of Technology, School of Economics and Finance.
    Additional URLs
    http://www.curtin.edu.au/research/crae/publications/working-paper-series/index.cfm
    School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/36722
    Collection
    • Curtin Research Publications
    Abstract

    We develop a model of a federation with two heterogeneous states which participate in an Australian-style inter-temporal revenue sharing-equalization scheme that redistributes income from rich to poor states. We then consider a policy shock requiring the states to make the transition to a steady state with a higher capital to effective labour ratio. It is shown that equalization induces the states to delay convergence, resulting in unambiguously smaller per capita output over time in each state, including the poor state receiving a net transfer. The paper also provides the foundation for further theoretical and empirical research.

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