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Interjurisdictional Tax Competition in a Federal System of Overlapping Revenue Maximizing Governments

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  • Laurent Flochel

    ()

  • Thierry Madies

Abstract

Academic literature in public finance has focused on interjurisdictional tax competition—namely among similar types of local governments—but has leaved vertical externalities arising from interactions between two overlapping governments sharing the same tax base aside. The purpose of this paper is to provide a simple model within which interjurisdictional tax competition and vertical interactions between two overlapping governments that share the same tax base can be analyzed simultaneously. We find that interjurisdictional tax competition reduces the global tax rate set by both overlapping governments (federal and local) but is unable to solve completely the distortion arising from vertical externalities. The model is also extended to allow for government subsidies to industrial capital. We give sufficient conditions for capital subsidies to be more efficient to attract capital when they are granted at a federal level rather than at a local level. Copyright Kluwer Academic Publishers 2002

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File URL: http://hdl.handle.net/10.1023/A:1014695219494
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 9 (2002)
Issue (Month): 2 (March)
Pages: 121-141

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Handle: RePEc:kap:itaxpf:v:9:y:2002:i:2:p:121-141

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: tax competition; Leviathan; tax base sharing; capital subsidies;

References

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  1. Goodspeed, Timothy J., 2000. "Tax structure in a federation," Journal of Public Economics, Elsevier, vol. 75(3), pages 493-506, March.
  2. Forbes, Kevin F & Zampelli, Ernest M, 1989. "Is Leviathan a Mythical Beast?," American Economic Review, American Economic Association, vol. 79(3), pages 568-77, June.
  3. Zax, Jeffrey S, 1989. "Is There a Leviathan in Your Neighborhood?," American Economic Review, American Economic Association, vol. 79(3), pages 560-67, June.
  4. Beck, John H., 1993. "Tax abatement and tax rates in a system of overlapping revenue-maximizing governments," Regional Science and Urban Economics, Elsevier, vol. 23(5), pages 645-665, November.
  5. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-57, September.
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Cited by:
  1. Michael Keen & Christos Kotsogiannis, 2003. "Leviathan and Capital Tax Competition in Federations," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 177-199, 04.
  2. Florence LACHET-TOUYA, 2013. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working Papers 2012-2013_9, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Jul 2013.
  3. Alexander Libman, 2012. "Sub-national political regimes and asymmetric fiscal decentralization," Constitutional Political Economy, Springer, vol. 23(4), pages 302-336, December.
  4. Lisa Grazzini & Alessandro Petretto, 2013. "Federalism with Bicameralism," Working Papers - Economics wp2013_01.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  5. Florence TOUYA, 2009. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working Papers 9, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2009.
  6. William Hoyt, 2005. "The Assignment and Division of the Tax Base in a System of Hierarchical Governments," Working Papers 2005-07, University of Kentucky, Institute for Federalism and Intergovernmental Relations.

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