Intergovernmental equalization grants: some fundamental principles.

Propositions related to intergovernmental equalization grants are always implicitly or explicitly derived from one model of government or another. The paper assumes that governments are competitive organisms. In such a frame of reference, equalization payments serve to insure that all the units in a decentralized governmental system have a chance to share in the benefits of competition. In other words, equalization payments are stabilization instruments. As such they will generally have an effect on the interpersonal distribution of income, but they are not motivated by that effect. The paper also argues that economic globalization increases the need for equalization grants.