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Fiscal competition and reality: A time series approach

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  • Zsolt Becsi
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    Abstract

    Strategic interjurisdictional behavior and the interaction over time of the mean and dispersion of average tax rates across states are analyzed in a vector autoregression model. Variance decompositions reveal that fiscal competition explains roughly one-third of the time variation of state and local taxes. Impulse response functions identify the type of fiscal competition and the characteristics of leaders and followers. Local tax dynamics agree with Wildasin's (1988) results on expenditure competition with significant short- and medium-run effects but insignificant long-run effects. State tax dynamics conform to tax export competition with significant effects occurring over a relatively short time.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 98-19.

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    Date of creation: 1998
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    Handle: RePEc:fip:fedawp:98-19

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    Keywords: State finance ; Time-series analysis;

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    1. de Crombrugghe, Alain & Tulkens, Henry, 1990. "On Pareto improving commodity tax changes under fiscal competition," Journal of Public Economics, Elsevier, vol. 41(3), pages 335-350, April.
    2. Coates, Dennis, 1993. "Property tax competition in a repeated game," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 111-119, March.
    3. Roger H. Gordon, 1982. "An Optimal Taxation Approach to Fiscal Federalism," NBER Working Papers 1004, National Bureau of Economic Research, Inc.
    4. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 689-701, October.
    5. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, vol. 29(2), pages 133-172, March.
    6. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, October.
    7. Ravi Kanbur & Michael Keen, 1991. "Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size," Working Papers 819, Queen's University, Department of Economics.
    8. Zsolt Becsi, 1996. "Do state and local taxes affect relative state growth?," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 18-36.
    9. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-57, September.
    10. Inman, Robert P. & Rubinfeld, Daniel L., 1996. "Designing tax policy in federalist economies: An overview," Journal of Public Economics, Elsevier, vol. 60(3), pages 307-334, June.
    11. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January.
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    13. Gilbert E. Metcalf, 1993. "Tax exporting, federal deductibility, and state tax structure," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 109-126.
    14. Beck, John H., 1983. "Tax competition, uniform assessment, and the benefit principle," Journal of Urban Economics, Elsevier, vol. 13(2), pages 127-146, March.
    15. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
    16. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP -804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. Wilson, John D., 1985. "Optimal property taxation in the presence of interregional capital mobility," Journal of Urban Economics, Elsevier, vol. 18(1), pages 73-89, July.
    18. Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-42, October.
    19. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November.
    20. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    21. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
    22. 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.
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