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RESEARCH PAPER
Equalisation Grants and Local Taxation: The Case of Poland
1
Department of Public Finance, Poznań University of Economics and Business, Poland
Submission date: 2023-01-04
Final revision date: 2023-04-05
Acceptance date: 2023-05-12
Publication date: 2023-06-30
Corresponding author
Monika Banaszewska
Department of Public Finance, Poznań University of Economics and Business, Poland
Department of Public Finance, Poznań University of Economics and Business, Poland
GNPJE 2023;314(2):47-65
KEYWORDS
JEL CLASSIFICATION CODES
ABSTRACT
This paper uses data on real estate tax revenue obtained by Polish municipalities from 2005 to 2017 to determine whether equalisation grants discourage local governments from collecting their own revenue. This question lies at the heart of efforts to build revenue equalisation systems for local government units. A discontinuous change in the transfer scheme makes it possible to employ a quasi-experimental approach (difference-in-differences estimation). An increase in the vertical equalisation rate is found to diminish the tax effort of municipalities that receive equalisation grants. The income effect of these grants is also documented. The research results indicate that shifts in an institutional setting trigger permanent changes in local fiscal policies. Moreover, it has been found that the effect increases after a few years and remains significant in the medium term. This implies that any modifications in the sub-national fiscal framework should be preceded by thorough analysis and consultations.
ACKNOWLEDGEMENTS
The author gratefully acknowledges the support received from Deutscher Akademischer Austauschdienst (DAAD).
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