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Politics or mobility? Evidence from us excise taxation

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  • Alejandro Esteller-Moré

    ()
    (Universitat de Barcelona & IEB)

  • Leonzio Rizzo

    ()
    (Università di Ferrara & IEB)

Abstract

We test for the state interdependence of gasoline and cigarette taxation in the US (1975-2006). We estimate a tax reaction function, and find that state interdependence is due solely to yardstick competition, since any interaction disappears completely in the case of states with lame duck governors. This result holds for both taxes: the short-run reaction of those states whose governor is eligible to stand for reelection is 0.13 and 0.21 for gasoline and cigarette taxation, respectively. In the long run, the cigarette tax rates levied in a jurisdiction match those of its neighbors perfectly, while the long-run reaction in the case of gasoline is much lower at 0.72.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/3.

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Length: 25 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ieb:wpaper:2010/4/doc2010-3

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Keywords: Tax competition; political accountability; excise taxes;

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  1. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  2. Rork, Jonathan C., 2003. "Coveting Thy Neighbors' Taxation," National Tax Journal, National Tax Association, vol. 56(4), pages 775-87, December.
  3. Esteller-Moré, Alejandro & Rizzo, Leonzio, 2011. "(Uncontrolled) Aggregate Shocks Or Vertical Tax Interdependence? Evidence From Gasoline And Cigarettes," National Tax Journal, National Tax Association, vol. 64(2), pages 353-79, June.
  4. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2004. "Horizontal and Vertical Indirect Tax Competition: Theory and Some Evidence From the USA," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4470, C.E.P.R. Discussion Papers.
  5. Ben Lockwood & Giuseppe Migali, 2009. "Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 119(536), pages 406-429, 03.
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  8. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1417-26, November.
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  10. Avinash Dixit, 1996. "Special-Interest Lobbying and Endogenous Commodity Taxation," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 22(4), pages 375-388, Fall.
  11. Maarten Allers & J. Elhorst, 2005. "Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands," International Tax and Public Finance, Springer, Springer, vol. 12(4), pages 493-513, August.
  12. Michael A. Nelson, 2002. "Using Excise Taxes to Finance State Government: Do Neighboring State Taxation Policy and Cross-Border Markets Matter?," Journal of Regional Science, Wiley Blackwell, Wiley Blackwell, vol. 42(4), pages 731-752.
  13. SALMON, Pierre, 1987. "Decentralization as an incentive scheme," Institut des Mathématiques Economiques – Document de travail de l’I.M.E. (1974-1993), Institut des Mathématiques Economiques. LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS, Un 98, Institut des Mathématiques Economiques. LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS, Université de Bourgogne.
  14. Sole Olle, Albert, 2003. "Electoral accountability and tax mimicking: the effects of electoral margins, coalition government, and ideology," European Journal of Political Economy, Elsevier, Elsevier, vol. 19(4), pages 685-713, November.
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