Measurement, Determinants and Effects on Country Stability
Studies in Fiscal Federalism and State–local Finance series
Edited by Núria Bosch, Marta Espasa and Albert Solé Ollé
In many countries, the struggle over the inter-regional allocation of taxes and spending is continuous. In Spain, Belgium, Italy and Canada – to cite just some of the case studies examined by this book – politicians, academics and the media alike spend considerable amounts of time and effort arguing over how much each region gets or should get from the central government budget. At a more technical level, this debate centres on the measurement of fiscal flows, where the ‘net fiscal flow’ or ‘fiscal balance’ represents the difference between what the residents of a region receive in public services and what they must pay in taxes to the central government. In some countries, these calculations are made by the central government itself, while in others a plethora of bodies publish what are, at times, contradictory results. The first objective of this book, therefore, is to provide a practical guide to the calculation of ‘fiscal flows’. The theory of tax incidence and spending – which underpins the methodologies applied – was established decades ago, which means that in this respect we have little to add. However, a number of years ago – when computing the ‘fiscal balances’ for the Spanish regions – we realized that there was no comprehensive methodological survey available on this topic that might be of help to the applied researcher. Further, given the relatively few interpretative studies available, we also felt there was a need to clarify the utility of performing such calculations, to discuss the different methodologies used and to offer some...