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Subnational government tax revenue capacity and effort convergence : New evidence from sequential unit root tests

Mahdavi, Saeid and Westerlund, Joakim LU (2018) In Economic Modelling 73. p.174-183
Abstract

Convergence in revenue capacity and effort around rising trends help more subnational governments assume their devolved functions. We examine the extent of such convergence by estimating the proportion of all pairwise convergent gaps in a panel of 48 combined state-local governments (SLGs) over the period 1981–2013 using a novel methodology. We found no evidence of convergence in tax revenue capacity or tax effort. However, about half of the revenue effort gaps were convergent when revenue was more broadly defined. At a given revenue capacity level, SLGs significantly varied with respect to the revenue effort and incidence of its convergence. Our results caution against inferring convergence as a sample wide phenomenon based on... (More)

Convergence in revenue capacity and effort around rising trends help more subnational governments assume their devolved functions. We examine the extent of such convergence by estimating the proportion of all pairwise convergent gaps in a panel of 48 combined state-local governments (SLGs) over the period 1981–2013 using a novel methodology. We found no evidence of convergence in tax revenue capacity or tax effort. However, about half of the revenue effort gaps were convergent when revenue was more broadly defined. At a given revenue capacity level, SLGs significantly varied with respect to the revenue effort and incidence of its convergence. Our results caution against inferring convergence as a sample wide phenomenon based on conventional tests, reveal a potential challenge to devolution in the absence of redistribution of federal grants, and are consistent with desire for fiscal diversity.

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author
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organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Convergence, Sequential unit root test, State and local governments
in
Economic Modelling
volume
73
pages
174 - 183
publisher
Elsevier
external identifiers
  • scopus:85044268036
ISSN
0264-9993
DOI
10.1016/j.econmod.2018.03.016
language
English
LU publication?
yes
id
b0dfa74b-3aba-48d1-9def-bb328c7d80e5
date added to LUP
2018-04-09 15:21:03
date last changed
2022-04-25 06:42:48
@article{b0dfa74b-3aba-48d1-9def-bb328c7d80e5,
  abstract     = {{<p>Convergence in revenue capacity and effort around rising trends help more subnational governments assume their devolved functions. We examine the extent of such convergence by estimating the proportion of all pairwise convergent gaps in a panel of 48 combined state-local governments (SLGs) over the period 1981–2013 using a novel methodology. We found no evidence of convergence in tax revenue capacity or tax effort. However, about half of the revenue effort gaps were convergent when revenue was more broadly defined. At a given revenue capacity level, SLGs significantly varied with respect to the revenue effort and incidence of its convergence. Our results caution against inferring convergence as a sample wide phenomenon based on conventional tests, reveal a potential challenge to devolution in the absence of redistribution of federal grants, and are consistent with desire for fiscal diversity.</p>}},
  author       = {{Mahdavi, Saeid and Westerlund, Joakim}},
  issn         = {{0264-9993}},
  keywords     = {{Convergence; Sequential unit root test; State and local governments}},
  language     = {{eng}},
  month        = {{03}},
  pages        = {{174--183}},
  publisher    = {{Elsevier}},
  series       = {{Economic Modelling}},
  title        = {{Subnational government tax revenue capacity and effort convergence : New evidence from sequential unit root tests}},
  url          = {{http://dx.doi.org/10.1016/j.econmod.2018.03.016}},
  doi          = {{10.1016/j.econmod.2018.03.016}},
  volume       = {{73}},
  year         = {{2018}},
}