2003-06 EC: On Equalization and Incentives:An Empirical Assessment (Working Paper)
published: 2003 | Research publication | Working Paper - Economics
ABSTRACT† Despite a broad consensus concerning the incentive effects of equalization, we know little about their empirical significance. In this paper, we make use of the variation in incentive effects brought about by the 1982 reform of equalization in Canada to identify the impact on recipientsí own source revenues in the years immediately following reform. We find that reform had a positive effect on own-source revenue growth (net of income taxes) for most recipient provinces excluded from the new standard. In contrast, reform had a negative effect on revenue growth in Quebec. These results are broadly consistent with the expected short run revenue effects from a reform-induced change in taxing incentives.
Key words: Equalization reform, taxation, incentives effects
JEL classification: H71, H77
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revised Dec 1/04