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Vertical tax competition and consumption externalities in a federation with lobbying

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  • Esteller-Moré, Alejandro
  • Galmarini, Umberto
  • Rizzo, Leonzio

Abstract

We consider a federation with two layers of government, in which Leviathan policy makers levy an excise tax on a consumption good that generates a negative externality and that is produced in an imperfectly competitive market. When both layers of government are allowed to tax, policy choices are affected also by vertical tax competition. In this setting, tax policy in general is not efficient. We then examine how special interest groups may influence tax policy by lobbying the policy makers. We find that, depending on market structure and on the level of the externality, lobbying can improve efficiency, and that tax-base sharing by two layers of government can be more efficient than taxation by a single layer.

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Bibliographic Info

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

Volume (Year): 96 (2012)
Issue (Month): 3 ()
Pages: 295-305

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Handle: RePEc:eee:pubeco:v:96:y:2012:i:3:p:295-305

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Vertical tax externalities; Tax assignment; Pressure groups; Excise taxes; Leviathan policy makers;

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References

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Cited by:
  1. Diego Martínez, 2014. "Vertical externalities revisited: new results with public inputs and unit taxation," Working Papers 1403, Universidade de Vigo, GEN - Governance and Economics research Network.

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