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Optimal Taxation And Resource Transfers In A Federal Nation

Author

Listed:
  • M.N. Murty

    (Institute of Economic Growth)

  • Ranjan Ray Author-Workplace-Delhi School of Economics

Abstract

This paper analyses optimal commodity taxes in a federal nation under alternative models of fiscal federalism, namely, fully coordinated and non-co-operative fiscal behaviour of the federal and provincial authorities. Illustrative calculations for India confirm sensitivity of optimal commodity taxes to federal specification. The paper, then, extends the non-co-operative model to allow resource transfer from the Centre to the provinces. The paper also proposes computational procedures to estimate the federal and provincial components of optimal commodity tax. Illustrative empirical evidence suggests considerable potential for these procedures in future numerical applications.

Suggested Citation

  • M.N. Murty & Ranjan Ray Author-Workplace-Delhi School of Economics, 1994. "Optimal Taxation And Resource Transfers In A Federal Nation," Working papers 02, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:02
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    References listed on IDEAS

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    1. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 567-586.
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    3. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    4. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    5. Murty, M N & Ray, Ranjan, 1989. " A Computational Procedure for Calculating Optimal Commodity Taxes with Illustrative Evidence from Indian Budget Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(4), pages 655-670.
    6. Arnott, Richard & Grieson, Ronald E., 1981. "Optimal fiscal policy for a state or local government," Journal of Urban Economics, Elsevier, vol. 9(1), pages 23-48, January.
    7. Ray, Ranjan, 1986. "Sensitivity of `optimal' commodity tax rates to alternative demand functional forms : An econometric case study of India," Journal of Public Economics, Elsevier, vol. 31(2), pages 253-268, November.
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