Integration, decentralization, taxation, and revenue sharing : Good governance, sustainable fiscal policy and poverty reduction as peace-keeping strategies

Figure 11: Micro Simulation as Instrument of Modern Fiscal Planning 
Fiscal Planning and Annual 
Budgeting
Macroeconomic Development and 
Tax Reform
Short- and Mid-term Tax Projections 
Method: 
Micro Simulation 
and Econometric Estimations 
State Level 
Changes in 
Tax Revenue
and Revenue 
Distribution on the Jurisdictional Levels 
Revision of Political 
Program Planning 
of 
the Jurisdictions 
Revenue
Distribution
Fiscal Equlization 
(Fiscal Capaci
ty
)
Individual Level 
Changes in the 
Distribution of Dispos-
able Income 
on the Households 
Behavioral Adaptations
on Side of the 
Citizen/Voters (Economical and Political) 
Changes in the 
Tax and Transfer bases
Discussions of Tax and Social Policy Reforms 
New Micro Simulation to Evaluate the Alternatives

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The macroeconomic developments as well as the changes and tax and transfer law 
have direct consequences for the budgetary situation. In federal states also the reve-
nue distribution on the different jurisdictional levels is often seriously influenced by 
such phenomenon. This might result in undesirable deficits or surpluses within the 
budgets of some jurisdictions as long as the revenue sharing, fiscal equalization sys-
tem or the distribution of tasks on the jurisdictional levels remains unchanged. If mi-
cro data files are available, which contains the necessary data even on the regional 
and local levels such effects can be made obvious using the micro simulation ap-
proach. With the help of such model the consequences of the FES reform for the 
communities in Liechtenstein have been estimated, which has been extremely helpful 
for the acceptance of the new system by the single majors as well as in the state’s 
parliament.