Parametric Properties of Tax Effort Revenue Sharing

Abstract

Some Revenue Sharing programs, including the Federal government’s General Revenue Sharing program, reward higher tax effort with larger aid payments. A natural, game-theoretic generalization of the standard consumer demand based theory of grants-in-aid is used to examine the impacts such tax effort provisions have on the recipient government’s tax effort, spending levels, and welfare. Nonlinear simulation is used to provide rough quantitative estimates of the impacts General Revenue Sharing had in 1972.

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