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Ad Valorem Taxes and the Fiscal Gap in Federations

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Author Info

  • Christos Kotsogiannis

    (Department of Economics, University of Exeter)

  • Diego Martinez

    (Department of Economics, University Pablo Olavide)

Abstract

This paper investigates the implications of vertical fiscal externalities for the optimal federal tax and the sign of fiscal gap in the presence of ad valorem taxation. It is shown that the federal government can always achieve the second-best optimum for public good provision. The sign of the fiscal gap is, in general, ambiguous. The consequence of this is that a precise evaluation of the fiscal gap requires an explicit consideration of the underlying fundamentals of the federal economy.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0703.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0703.

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Date of creation: 2007
Date of revision:
Handle: RePEc:exe:wpaper:0703

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Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
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Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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Keywords: Ad valorem taxes; fiscal gap; externalities; fiscal federalism;

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Cited by:
  1. Diego Martínez, 2007. "Optimal federal taxes with public inputs," Working Papers 07.16, Universidad Pablo de Olavide, Department of Economics.
  2. Diego Martinez & Tomas Sjögren, 2012. "Vertical externalities with lump-sum taxes: how much difference does unemployment make?," Working Papers 2012/25, Institut d'Economia de Barcelona (IEB).
  3. Diego Martínez, 2014. "Vertical externalities revisited: new results with public inputs and unit taxation," Working Papers 1403, Universidade de Vigo, GEN - Governance and Economics research Network.

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