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Fiscal equalisation: A key to decentralised public finances
| Content Provider | OECD iLibrary |
|---|---|
| Organization | OECD |
| Abstract | Fiscal equalisation is a transfer mechanism that allows different jurisdictions to provide their citizens with similar public services at similar tax rates despite differences in economic wealth. Across OECD countries, equalisation has a strong redistributive effect: on average it reduces pre-equalisation disparities by more than two-thirds and, in some countries, to virtually nil. After equalisation, tax and public service levels are much more evenly distributed across a country than GDP or household income. Strong equalisation comes at a cost. Strong equalisation may undermine local and regional development efforts or may prevent firms and households from migrating towards more productive jurisdictions. Equalisation systems also tend to be pro-cyclical and exacerbate asymmetric shocks to a jurisdiction. Moreover, large equalisation systems can undermine fiscal discipline at the sub-central level. Equalisation arrangements should rely on revenue and needs indicators that cannot be manipulated by sub-central jurisdictions, and they should be transparent about donors and recipients. |
| Page Count | 19 |
| Starting Page | 98 |
| Ending Page | 116 |
| Language | English |
| Publisher | OECD Publishing |
| Publisher Date | 2013-12-02 |
| Access Restriction | Open |
| Subject Keyword | Finance and Investment Governance Taxation |
| Content Type | Text |
| Resource Type | Chapter |
