Local autonomy and interregional equality : fiscal equalization with balanced budgets

Abstract

This paper contributes to the literature on fiscal equalization in three ways. First, it shows how two important types of transfer schemes, the foundation grant and the power equalization grant, can be seen as two different interpretations of equal opportunity ethics. Second, it characterizes versions of these transfers schemes that ensure a balanced budget for the central government. Third, it clarifies the nature of various fiscal spillover effects within the framework of balanced budgets.