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Vertical tax competition in Brazil: Empirical evidence for ICMS and IPI in the period 1995–2009

Author

Listed:
  • Rodolfo Herald da Costa Campos

    (Federal University of Ceará, Brazil)

  • Roberto Tatiwa Ferreira

    (Federal University of Ceará, Brazil)

  • Rafael Kloeckner

    (Federal University of Ceará, Brazil)

Abstract

The main objective of this study is to quantify the impact caused by changes in federal tax on the tax policy of the Brazilian states, considering the presence of horizontal tax competition between states. Using panel data covering 26 Brazilian states plus the Federal District during the period 1995–2009, two models were estimated representing the average reaction of the states in response to changes in federal tax rates. In the first model, both levels of government act simultaneously, whereas in the second model, reaction is sequential, with the federal government acting as the leader in defining its effective tax rates. The results indicate a positive and significant response of states to increases in the federal tax rate, resulting in an over-taxation of the common tax base and higher tax rates. Additional tests show that the first model is the most suitable to represent the problem analysed

Suggested Citation

  • Rodolfo Herald da Costa Campos & Roberto Tatiwa Ferreira & Rafael Kloeckner, 2015. "Vertical tax competition in Brazil: Empirical evidence for ICMS and IPI in the period 1995–2009," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(1), pages 111-127.
    • Handle: RePEc:anp:econom:v:16:y:2015:1:111_127
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    More about this item

    Keywords

    Fiscal federalism; Tax competition; Horizontal and vertical tax externalities; Reaction functions;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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