Fiscal Equity In Federal Systems

Abstract

This paper examines the normative foundations of fiscal equalization an issue handled, apparently decisively, in a classic paper by James Buchanan (1950). Contrary to Buchanan's claims, we argue that fiscal equalization requires extremely strong value judgements at least in the case where fiscal differences arise from the interaction of public goods provision under different population size effectively committing one to a Rawlsian maximin rule. Much weaker forms of the 'social welfare function' in this public goods case will generate the requirement that private consumption levels be equalized, but specifically not public consumption levels in which sense private goods equalization seems normatively weaker than public goods equalization, If this is so, the hope of justifying federal fiscal equalization on the basis of relatively uncontroversial individualistic norms seems illusory. Show more