Fiscal equalization in Nordic municipalities: institutions and inequalities

Abstract

The topic of this paper is fiscal equalization among municipalities in the four Nordic countries: Denmark, Finland, Norway, and Sweden. Fiscal equalization refers to transfers of financial resources to and between municipalities with the aim of mitigating regional differences in fiscal capacities and spending needs. More specifically, we ask the following research question: How does fiscal equalization impact spatial inequalities? We conduct a comparative empirical analysis of fiscal equalization policies in the Nordic countries. A main contribution is that we construct a granular dataset consisting of all municipalities in the four countries in 2020. We leverage this dataset to analyze inequalities before and after fiscal equalization. Our main finding is that equalization is strongest in Sweden and weakest in Norway, while Denmark and Finland are ranked in the middle.