Tax incentives in fiscal federalism: an integrated perspective
AbstractModels of fiscal federalism rarely account for the efficiency implications of intergovernmental fiscal ties for federal tax policy. This paper shows that fiscal institutions such that federal tax deductibility, vertical revenue-sharing, and fiscal equalization (being common features of existing federations) encourage local taxation, but may discourage federal taxation. Furthermore, the structure of public spending is skewed towards local spending. We also show that, when considering Leviathan governments, fiscal institutions reduce confiscatory taxation by the federal government. The result is contrary to the Cartelization Hypothesis (Brennan and Buchanan 1980). Finally, we characterize the efficient design of intergovernmental fiscal ties.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 43 (2010)
Issue (Month): 2 (May)
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Find related papers by JEL classification:
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
- H1 - Public Economics - - Structure and Scope of Government
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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