Resumen de On the states' behavior with equalization grants
This paper discusses how the state government�s behavior is affected when the so called Representative Tax System equalization scheme is implemented. In particular, we study the changes in the marginal cost of the public funds, and in the first order conditions for the optimal provision of a public input. A reduction in the MCPF is to be expected when lump-sum grants are replaced by RTS equalization transfers. However, this result has to be qualified under certain assumptions. Also we find that there does not exist a clear relationship between the degree of fiscal equalization and the marginal cost of providing the public input and the tax setting.
