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The Consequences of Overlapping Tax Bases for Redistribution and Public Spending in a Federation

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Author Info
Robin Boadway
Maurice Marchand
Marianne Vigneault

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Abstract

Tax and expenditure policies are studied in a federation with imperfectly mobile households. States implement a linear progressive tax and supply a public good. A vertical fiscal externality, reflecting the effect of state policies on federal revenues, provides an incentive for state taxes to be too progressive. A horizontal fiscal externality causes non-optimal states taxes and expenditures because of the migration effect. The federal government implements its own linear progressive tax and makes transfers to the states. The federal government can nullify both externalities by appropriate fiscal policies, and redistributive taxation can be decentralized to the states.

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File URL: http://www.econ.queensu.ca/working_papers/papers/qed_wp_963.pdf
File Format: application/pdf
File Function: First version 1997
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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 963.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 32 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:qed:wpaper:963

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Related research
Keywords: TAXES FISCAL POLICY

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Find related papers by JEL classification:
H2 - Public Economics - - Taxation, Subsidies, and Revenue
H7 - Public Economics - - State and Local Government; Intergovernmental Relations

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jorge Martinez-Vazquez, 2007. "Revenue Assignments in the Practice of Fiscal Decentralization," International Studies Program Working Paper Series, at AYSPS, GSU paper0708, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
  2. María Martínez Torres, . "Flujos migratorios interregionales en España: Un modelo de ecuaciones simultáneas," Studies on the Spanish Economy 207, FEDEA. [Downloadable!]
  3. Rizzo, Leonzio, 2005. "Interaction between Vertical and Horizontal tax Competition: Theory and Evidence," MPRA Paper 5334, University Library of Munich, Germany. [Downloadable!]
  4. C. Rangarajan & D.K. Srivastava, 2004. "Fiscal transfers in Canada: Drawing comparisions and lessons," National Institute of Public Finance and Policy, New Delhi Working Papers 18, National Institute of Public Finance and Policy, New Delhi, India. [Downloadable!]
  5. Esteller-Moré, Álex & Solé-Ollé, Albert, 1999. "Vertical income tax externalities and fiscal interdependence : evidence from the US," ZEW Discussion Papers 99-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  6. Granlund, David, 2005. "Sickness absence and health care in an economic federation," UmeÃ¥ Economic Studies 665, Umeå University, Department of Economics, revised 13 Apr 2007. [Downloadable!]
  7. Aronsson, Thomas, 2007. "General Income Taxation, Public Goods and Decentralized Leadership," UmeÃ¥ Economic Studies 715, Umeå University, Department of Economics. [Downloadable!]
  8. Vander LUCAS, 2001. "Cross-Border Shopping in a Federalist Economy," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 2002018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 28 May 2002. [Downloadable!]
  9. Blomquist, Sören & Micheletto, Luca, 2004. "Redistribution, In-Kind Transfers and Matching Grants when the Federal Government Lacks Information on Local Costs," Working Paper Series 2004:15, Uppsala University, Department of Economics. [Downloadable!]
  10. Marko Koethenbuerger, 2007. "Federal Tax-Transfer Policy and Intergovernmental Pre-Commitment," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  11. 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. [Downloadable!]
    Other versions:
  12. Aronsson, Thomas & Wikström, Magnus, 2001. "Optimal Taxation and Risk-Sharing Arrangements in an Economic Federation," UmeÃ¥ Economic Studies 538, Umeå University, Department of Economics. [Downloadable!]
  13. Diego Martínez, 2007. "Optimal federal taxes with public inputs," Working Papers 07.16, Universidad Pablo de Olavide, Departamento de Economía. [Downloadable!]
  14. Lisa Grazzini & Alessandro Petretto, 2007. "Tax Competition between Unitary and Federal Countries," Economics of Governance, Springer, vol. 8(1), pages 17-36, January. [Downloadable!] (restricted)
  15. Esteban Klor, 2002. "A Positive Model of Overlapping Income Taxation in a Federation of States," Wallis Working Papers WP32, University of Rochester - Wallis Institute of Political Economy. [Downloadable!]
  16. Rizzo, Leonzio, 2007. "Interaction between vertical and horizontal tax competition: evidence and some theory," MPRA Paper 8632, University Library of Munich, Germany, revised 2008. [Downloadable!]
  17. Koen Burggraeve & Philip Du Caju, 2003. "The labour market and fiscal impact of labour reductions: the case of reduction of employers' social security contributions under a wage norm regime with automatic price indexing of wages," Research series 200303-1, National Bank of Belgium. [Downloadable!]
  18. Aronsson, Thomas & Blomquist, Sören, 2004. "Redistribution and Provision of Public Goods in an Economic Federation," UmeÃ¥ Economic Studies 636, Umeå University, Department of Economics. [Downloadable!]
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  19. Marko Koethenbuerger, 2003. "Tax Competition in a Fiscal Union with Decentralized Leadership," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  20. Aronsson, Thomas & Blomquist, Sören & Micheletto, Luca, 2007. "Where Should the Elderly Live and Who Should Pay for their Care? A Study in Demographics and Geographical Economics," Working Paper Series 2007:6, Uppsala University, Department of Economics. [Downloadable!]
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  21. De Borger Bruno & Stef Proost, 2004. "Vertical and horizontal tax competition in the transport sector," Energy, Transport and Environment Working Papers Series ete0412, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment. [Downloadable!]
    Other versions:
  22. R. Boadway & K. Cuff & M. Marchand, 2001. "Equalization and the Decentralization of Revenue-Raising in a Federation," Department of Economics Working Papers 2001-04, McMaster University. [Downloadable!]
    Other versions:
  23. Revelli Federico, 2002. "Reaction or interaction? Spatial process identification in multi-tiered government structures," Department of Economics Working Papers 200202, University of Turin. [Downloadable!]
    Other versions:
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