This paper compares the impact of two equalization transfer schemes on regional budgetary choices: a gross equalization scheme, where ex-post transfers to regions are financed from federal tax revenues, and a net equalization scheme, where region- to-region ex-post transfers allocated by the federal government are self-financed. The net equalization scheme reduces ex-post federal intervention...
Our paper presents a model of decentralized leadership with fiscal equalization and imperfect trade liberalization. The degree of trade integration (reflected by trade costs) turns out to have an effect on both state corporate taxes and ex-post vertical equalization transfers. Our main results are the following: when public goods are highly valued by the citizens of the federation, ex post...
