Too Many Municipalities?

Does democracy lead to the creation of too many municipalities? We analyze this issue within the context of the Alesina and Spolare (1996) model where the quality of municipal services deteriorates with the distance from the center of a municipality. Individuals can vote in a referendum to split an existing municipality. We show that social welfare will decline when municipalities are split if the level of the public service, as chosen by the median voter, is lower in the new smaller municipalities. In general, the model indicates that there may be a democratic bias in favour of creating too many municipalities.median voter model; fiscal federalism; succession; municipal boundaries

The Marginal Cost of Public Funds and the Flypaper Effect

A lump-sum intergovernmental transfer has a "price effect", as well as an "income effect", because it allows the recipient government to reduce its tax rate, which lowers its marginal cost of public funds, while still providing the same level of public service. This reduction in the effective price of providing the public service helps to explain the "flypaper effect" - the empirical observation that a lump-sum grant has a much larger effect on spending than an increase in personal income. Contrary to the assertions of Mieszkowski (1994) and Hines and Thaler (1995), a model of a benevolent local government financing its expenditures with a distortionary tax predicts flypaper effects from lump-sum grants that are similar to those observed in many econometric studiesflypaper effect; marginal cost of public funds; intergovernmental grants; fiscal federalism

Once on the Lips, Forever on the Hips: A Benefit-Cost Analysis of Fiscal Stimulus in OECD Countries

The author evaluates the fiscal stimulus policies of 20 OECD countries within a simple benefit-cost framework. Among his findings: in Canada, to be justifiable on a benefit-cost basis, a fiscal stimulus project that improves consumptive public services must provide at least 73 cents in benefits for every dollar of fiscal stimulus.tax competitiveness program, OECD, fiscal stimulus measures

The Canadian Federal-Provincial Fiscal Equalization System

Finanzausgleich, Horizontaler Finanzausgleich, Kanada, Fiscal transfer, Horizontal fiscal transfer, Canada

The Optimal Taxation Approach to Intergovernmental Grants

An optimal tax system equates the marginal cost of public funds across all tax bases. This idea is applied to a federation to derive the optimal unconditional transfers that will promote an optimal allocation of taxation and expenditures among the governments in the federation. This approach provides insights into the concepts of vertical and horizontal fiscal imbalance, fiscal capacity, and fiscal need. Expressions for the optimal fiscal equalization grant and the optimal vertical fiscal gap are derived. We also show how the marginal cost of public funds affects the optimal matching grant rate for activities that generate expenditure externalities.intergovernmental grants; median voter model; fiscal federalism; vertical fiscal gap; vertical fiscal imbalance; fiscal capacity; fiscal need

Plane wave stability of some conservative schemes for the cubic Schr\"{o}dinger equation

The plane wave stability properties of the conservative schemes of Besse and Fei et al. for the cubic Schr\"{o}dinger equation are analysed. Although the two methods possess many of the same conservation properties, we show that their stability behaviour is very different. An energy preserving generalisation of the Fei method with improved stability is presented.Comment: 12 pages, 6 figure

What Does it Cost Society to Raise a Dollar of Tax Revenue? The Marginal Cost of Public Funds

The marginal cost of public funds measures the welfare loss a society incurs in raising an additional dollar of tax revenue. Tax increases distort economic decisions and erode tax bases because of tax avoidance and tax evasion by taxpayers. This Commentary uses econometric estimates of the effects of higher provincial tax rates on the provinces’ corporate income tax, personal income tax, and sales tax bases to calculate the marginal cost of public funds (MCF) for these taxes. The results indicate that the cost of increasing provincial tax revenues through a corporate tax rate increase is very high, and in some provinces, corporate tax rate reductions in 2006 would have increased the present value of the provincial government’s total tax revenues. The results also suggest that significant welfare gains would accrue from reducing provincial corporate income tax rates. As well, increasing provincial corporate and personal income tax rates can cause significant reductions in federal tax revenues because the federal and provincial governments levy taxes on the same tax bases. Finally, Canada’s system of the equalization grants might reduce the perceived MCF of recipient provinces.Fiscal and Tax Competitiveness, marginal cost of public funds (MCF)