The Political Economy of Inter-Regional Fiscal Flows Measurement, Determinants and Effects on Country Stability
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
Comment I Núria Bosch The theory of public finance, and, within it, the theory of the territorial incidence of public sector action, is the methodological basis for estimating fiscal balances. The analysis of the territorial incidence of revenues is older than that of the expenditures, and its theoretical basis is widely accepted by academics. The objective is to calculate the economic incidence of taxation, measured by the decrease that real income suffers due to taxation, distinguishing economic incidence from legal or formal incidence which are implicit in the tax payment. Therefore, economic incidence tries to determine who bears the tax burden. Once space is introduced into the economic incidence analysis, revenues are allocated to the territory where the people who bear the tax burden live. Likewise, it would be interesting to emphasize Norregaard (1997) and Short’s (1984) contributions which, contrary to the previous approach to the territorial allocation of revenues, estimate revenues generated within a region by allocating tax revenues according to the tax base of each region. As Norregaard admits, it is a legitimate strategy to assign tax revenues as if a region collected the revenues of supra-national fiscal legislation in its own territory. This criterion fits better with fiscal decentralization or fiscal federalism scenarios, in which sub-central governments have some fiscal sovereignty. Nevertheless, the analysis of the distribution of the benefits arising from public expenditure has been proven to be, both theoretically and practically, more complicated than tax incidence analysis. The economic analysis of the incidence of...
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