Vertical externalities in tax setting: evidence from gasoline and cigarettes
AbstractA common feature of federal systems is that tax bases are joint property. Consequently, state and federal tax setting decisions are interdependent. Our aim here is to put forward a rudimentary theoretical analysis of this phenomenon, and to use the theory as a framework for econometrically estimating the magnitude of the responses. We find that when the federal government increases taxes, there is a significant positive response of state taxes. For example, a 10-cent per gallon increase in the federal tax rate on gasoline leads to a 3.5-cent increase in the state tax rate.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 70 (1998)
Issue (Month): 3 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Tim Besley & Harvey S. Rosen, 1997. "Vertical externalities in tax settings: evidence from gasoline and cigarettes," IFS Working Papers W97/23, Institute for Fiscal Studies.
- Timothy J. Besley & Harvey S. Rosen, 1999. "Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes," NBER Working Papers 6517, National Bureau of Economic Research, Inc.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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