| Resolving Fiscal Conflicts
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| Paul Bernd Spahn |
Fiscal conflicts are a permanent feature of multi-level governments.
Equalisation grants are useful as conflict-resolving devices, but their
power should not be overestimated. Where underlying political conflicts
loom large, such grants could create fiscal dependency and encourage
hold-ups by regional governments. This is true wherever there are
ethnic, linguistic, religious, or other cleavages that entail fiscal
rivalries between different factions of the population. Some of these
complexities are addressed in this paper since federal systems of
government are often thought to mitigate such conflicts. An avenue to
explore is quid-pro-quo microtransfers that compensate for interregional
public service provisions or are used to cofinance infrastructure
developments.
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