Fiscal Equalization with Hidden Information and Hidden Action

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Kirn, T. (2014). Fiscal Equalization with Hidden Information and Hidden Action. Presented at the Conference "Reforming Public Service Delivery", L'Université de Lausanne, IDHEAP.

Publication type

Presentation at Scholarly Conference


This paper studies the local tax policy setting behavior within a federal system under hidden information and hidden action by considering the incentive effects arising from elections and yardstick competition. It differsfrom earlier contributions by combining auction theory with a modern approach of fiscal federalism, based on agency theory. In this framework serves the yardstick competition as baseline model that leads to a Pareto efficient outcome, despite private information about the costs of service provision and rent-seeking activities of local policy makers. However, a first best solution is missed, if the local governments behave non-myopic. Despite this are both results from the perspective of principals (central level, local electorate) more advantageous than the outcome of a singular yardstick competition, which is in this comparison only third-best.


Microsimulation und Model Development
Auftragsforschung, since June 2009

Content of this project is the ongoing development of the Liechtenstein micro-simulation models. There are two basic models: microLIE: PIT is the model of the personal income tax system and microLIE: ... more ...


Organizational Units

  • Chair for Tax Management and the Laws of Liechtenstein and International Taxation
  • Institute for Finance

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