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Multi-tier tax competition on Gasoline

Author

Listed:
  • Marie-Laure BREUILLÉ

    (CESAER, INRA.)

  • Emmanuelle TAUGOURDEAU

    (CREST, University of Paris-Saclay, ENS Paris-Saclay.)

Abstract

This paper analyzes the fiscal interactions arising from gasoline taxation in a federation. We adopt a general theoretical model for studying simultaneous vertical and horizontal tax competition by i) introducing a specific monetary cost of refueling ii) assuming that the price of gasoline is affected by either excise taxes (regional and federal) and the VAT rate, ii) considering elastic demand for gasoline. We show that at the symmetric equilibrium, horizontal taxes are strategic complements but vertical taxes are strategic may be substitutes. Moreover, horizontal excise taxes are strategic substitutes with VAT whereas the result is unclear for the reaction between regional and federal excise taxes. Finally, we show that the tax reaction functions and thus the equilibria crucially differ according to the pattern of decision-making (social planner, Nash or defederalized leadership).

Suggested Citation

  • Marie-Laure BREUILLÉ & Emmanuelle TAUGOURDEAU, 2019. "Multi-tier tax competition on Gasoline," Working Papers 2019-23, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2019-23
    as

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    References listed on IDEAS

    as
    1. John Coglianese & Lucas W. Davis & Lutz Kilian & James H. Stock, 2017. "Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(1), pages 1-15, January.
    2. Brons, Martijn & Nijkamp, Peter & Pels, Eric & Rietveld, Piet, 2008. "A meta-analysis of the price elasticity of gasoline demand. A SUR approach," Energy Economics, Elsevier, vol. 30(5), pages 2105-2122, September.
    3. Devereux, M.P. & Lockwood, B. & Redoano, M., 2007. "Horizontal and vertical indirect tax competition: Theory and some evidence from the USA," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 451-479, April.
    4. Michael Keen, 1998. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 454-485, September.
    5. Hendrik Vrijburg & Ruud Mooij, 2016. "Tax rates as strategic substitutes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(1), pages 2-24, February.
    6. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-892, September.
    7. Richard M. Bird & François Vaillancourt, 2006. "Perspectives on Fiscal Federalism," World Bank Publications - Books, The World Bank Group, number 6953, December.
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    More about this item

    Keywords

    Fiscal Federalism; Gasoline Taxation; Horizontal and Vertical Tax Interactions.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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