Optimal federal taxes with public inputs
AbstractThis paper deals with the solution to vertical expenditure externalities in a federation with two levels of government sharing taxes. Under these circumstances, the Nash equilibrium does not satisfy the condition for production efficiency in the provision of public inputs. This vertical expenditure externality is removed when the federal government, behaving as Stackelberg leader, chooses the optimal tax rate on labor income. The sign of this tax rate depends on the elasticity of marginal productivity of the public input with respect to employment. Moreover, the previous result concerning both vertical (tax and expenditure) externalities are independent each other is confirmed here.
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Bibliographic InfoPaper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 07.16.
Length: 14 pages
Date of creation: Nov 2007
Date of revision:
vertical externalities; public input; federal taxes.;
Other versions of this item:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H4 - Public Economics - - Publicly Provided Goods
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-01 (All new papers)
- NEP-PBE-2007-12-01 (Public Economics)
- NEP-PUB-2007-12-01 (Public Finance)
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