Raffaella SANTOLINI () (Universita' Politecnica delle Marche, Dipartimento di Economia)
Abstract
In the literature, tax interaction is mainly due to tax and yardstick;competition. However, we suppose that tax interaction appears when the;local policy maker conforms his fiscal policy to decisions taken by his;neighbourhood to fill information gaps. Theoretical results show that;incomplete information leads to tax mimicking and a higher level of tax;rate. Moreover, leviathan governments are more sensitive than;benevolent ones to changes in neighbours tax rates (horizontal tax;interaction) but less to changes in the central government tax rate;(vertical tax interaction). Finally, there is no tax rate internalization;effects because an increase in the central government tax rate is not;followed by an equivalent decrease of local government tax rate.
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Paper provided by Universita' Politecnica delle Marche (I), Dipartimento di Economia in its series Working Papers with number
295.
Find related papers by JEL classification: H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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