Inter-state transfers for cost differences in federations with population mobility and natural resources
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The Australian system of horizontal scal equalization (HFE) transfers output from low to high cost states. This paper develops a standard model of a federation with an imperfectly mobile population and states which capture economic rents from natural resources and recycle the revenue on the basis of residency. A federal agency, which can be thought of as mimicking the role of the Commonwealth Grants Commission, chooses an inter-state transfer to maximize national social welfare. The contribution of the paper is to show that under the assumptions of the model, the optimal transfer to a state is increasing in its costs, for given costs in other states. This supports the notion of inter-state transfers in favour of high cost states. However, the result does not necessarily validate the magnitude of transfers that we see in practice in the Australian federation.
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Petchey, Jeffrey; Petchey, James (2013)This paper provides an efficiency rationale for expenditure equalization in federations. It does so by developing a fiscal federalism model with two citizen types; immobile non-workers and mobile workers. Three ...
Petchey, Jeffrey Dean; Wells, G. (2004)In 1901, the former colonies of New South Wales, Victoria, Queensland, Tasmania, Western Australia and South Australia federated to create the nation of Australia under the auspices of a new constitution. Within the ...
Petchey, Jeffrey (2016)The point of this paper is to show that under a certain set of highly plausible circumstances, the well-known fiscal equalisation transfer required to establish spa- tial efficiency in federations, regional unions of ...