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Vertical externalities with lump-sum taxes: how much difference does unemployment make?

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Author Info

  • Diego Martinez

    ()
    (University Pablo Olavide)

  • Tomas Sjögren

    (Umeå University)

Abstract

This paper analyses how the existence of unemployment affects the conventional approach to vertical externalities. We discuss the optimality rule for the provision of public inputs both in an unitary and a federal country. Our findings show that decentralizing the spending responsability on public inputs can bring its optimality rule closer to the production efficiency condition. Moreover, we describe the inability of the federal government, behaving as Stackelberg leader, to replicate the unitary outcome, unless to have new policy instruments at government’s disposal.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2012/25.

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Length: 21 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:ieb:wpaper:2012/6/doc2012-25

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Keywords: Public inputs; unemployment; vertical externalities;

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References

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  1. Diego Martinez & A. Sanchez, 2010. "A note on the optimal level of public inputs," Social Choice and Welfare, Springer, vol. 34(3), pages 363-369, March.
  2. Diego Martinez & Tomas Sjögren, 2009. "Can Labor Market Imperfections Cause Overprovision of Public Inputs?," Working Papers 09.13, Universidad Pablo de Olavide, Department of Economics.
  3. Robin Boadway & Jean-Francois Tremblay, 2005. "A Theory of Vertical Fiscal Imbalance," Working Papers 2006-04, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  4. Diego Martínez, 2008. "Optimal Federal Taxes with Public Inputs," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(4), pages 422-433, December.
  5. Kotsogiannis, Christos & Marti­nez, Diego, 2008. "Ad valorem taxes and the fiscal gap in federations," Economics Letters, Elsevier, vol. 99(3), pages 431-434, June.
  6. Motohiro Sato, 2000. "Fiscal Externalities and Efficient Transfers in a Federation," International Tax and Public Finance, Springer, vol. 7(2), pages 119-139, March.
  7. Dahlby, Bev & Wilson, Leonard S., 2003. "Vertical fiscal externalities in a federation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 917-930, May.
  8. Michael Keen, 1998. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 454-485, September.
  9. Ogawa, Hikaru & Sato, Yasuhiro & Tamai, Toshiki, 2006. "A note on unemployment and capital tax competition," Journal of Urban Economics, Elsevier, vol. 60(2), pages 350-356, September.
  10. Robin Boadway & Jean-François Tremblay, 2006. "A Theory of Fiscal Imbalance," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(1), pages 1-27, March.
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