Tax and expenditure policies are studied in a federation with imperfectly mobile households. States implement a linear progressive tax and supply a public good. A vertical Þscal externality, reßecting the effect of the state policies on federal revenues, provides an incentive to state taxes to be too progressive. A horizontal Þscal externality causes non-optimal states taxes and expenditures of the migration effect. The federal government implements its own linear progressive tax and makes transfers to the states. The federal government implements its own linear progressive tax and makes transfers to the states. The federal government can nullify both externalities by appropriate Þscal policies, and redistributive taxation can be decentralized to the states
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number
1998003.
Find related papers by JEL classification: H2 - Public Economics - - Taxation, Subsidies, and Revenue H7 - Public Economics - - State and Local Government; Intergovernmental Relations
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