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Abstract

In federal systems, where tax bases are joint property, the tax policy of one level of government affects the tax base of the other. This paper examines the interdependence of US federal and state cigarette tax rates. Our results suggest that states may reduce their cigarette tax rate by as much as 48 cents per dollar increase in the federal tax rate. Thus, a federal tax hike may reduce the amount of generated state tax revenues both directly (the overall tax rate rises and the state tax base declines), and indirectly (the state tax rate declines).

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File URL: http://www.sciencedirect.com/science/article/B6WMG-4PFW66Y-2/2/aca80e97af90884688f03b6f89ba673d
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 64 (2008)
Issue (Month): 1 (July)
Pages: 35-48

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Handle: RePEc:eee:juecon:v:64:y:2008:i:1:p:35-48

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Vertical tax externalities Cigarette taxation Fiscal federalism Corruption Political economy;

References

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1. Esteller-Moré, Álex & Solé-Ollé, Albert, 1999. "Vertical income tax externalities and fiscal interdependence: evidence from the US," ZEW Discussion Papers 99-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
   
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Citations

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Cited by:

1. Fredriksson, Per & Mamun, Khawaja, 2009. "Gubernatorial Reputation and Vertical Tax Externalities: All Smoke, No Fire?," Working Papers 2009002, Sacred Heart University, John F. Welch College of Business.
2. Fredriksson, Per & Mamun, Khawaja, 2009. "Tobacco Politics and Electoral Accountability in the United States," Working Papers 2009003, Sacred Heart University, John F. Welch College of Business.
3. Alejandro Esteller-Moré & Leonzio Rizzo, 2009. "(Uncontrolled) Aggregate shocks or vertical tax interdependence? Evidence from gasoline and cigarettes," Working Papers 2009/24, Institut d'Economia de Barcelona (IEB).
   
   • Alejandro Esteller-More (Universitat de Barcelona) & Leonzio Rizzo (Universita di Ferrara), 2009. "(Uncontrolled) Aggregate shocks or vertical tax interdependence? Evidende from gasoline and cigarettes," Working Papers in Economics 233, Universitat de Barcelona. Espai de Recerca en Economia.
4. Esteller-Moré, Alejandro & Galmarini, Umberto & Rizzo, Leonzio, 2012. "Vertical tax competition and consumption externalities in a federation with lobbying," Journal of Public Economics, Elsevier, vol. 96(3), pages 295-305.

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