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Leviathans, Federal Transfers, and the Cartelization Hypothesis

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Author Info
Marko Koethenbuerger ()

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Abstract

Federal fiscal arrangements are argued to give rise to tacit collusion among competing Leviathans (Brennan and Buchanan, The Power to Tax, CUP, 1980). Though frequently encountered in academic and policy discussions, the cartelization hypothesis has rarely been scrutinized formally. This paper explores the effect of federal equalizing transfers on Leviathans engaged in tax competition. Contrary to the hypothesis, equalization is found to potentially complement tax competition in taming the Leviathan by implicitly taxing tax revenues extracted by the Leviathan. Thus, transfers might be an appropriate constitutional provision against fiscal expropriation.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1180.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1180

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Related research
Keywords: Leviathan; fiscal transfers; fiscal competition; federalism; constitution;

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  1. Grossman, Philip J & West, Edwin G, 1994. " Federalism and the Growth of Government Revisited," Public Choice, Springer, vol. 79(1-2), pages 19-32, April.
  2. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December. [Downloadable!] (restricted)
  3. John Douglas Wilson & Roger H. Gordon, 2003. "Expenditure Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 399-417, 04. [Downloadable!] (restricted)
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  4. James M. Buchanan, 1952. "Federal Grants and Resource Allocation," Journal of Political Economy, University of Chicago Press, vol. 60, pages 208. [Downloadable!] (restricted)
  5. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January. [Downloadable!] (restricted)
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  6. Matthias Wrede, 2000. "Shared Tax Sources and Public Expenditures," International Tax and Public Finance, Springer, vol. 7(2), pages 163-175, March. [Downloadable!] (restricted)
  7. Bucovetsky, Sam & Smart, Michael, 2002. "The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  8. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November. [Downloadable!] (restricted)
  9. A. D. Scott, 1952. "Federal Grants and Resource Allocation," Journal of Political Economy, University of Chicago Press, vol. 60, pages 534. [Downloadable!] (restricted)
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