US Excise Tax Horizontal Interdependence: Yardstick vs. Tax Competition
AbstractUS excise tax rates are state interdependent. For example, a one-cent increase in the cigarette tax rate implies a contemporaneous cigarette tax increase of 0.18 cents in the neighboring state, while in the case of gasoline taxation the reaction to the same rise is just 0.11 cents. However, identifying the source of this interaction is key to its normative assessment. Our empirical analysis â€“ spanning the period 1992 to 2006 â€“ finds that interdependence in the case of gasoline taxation is driven just by the (fear of) base mobility. By contrast, in the case of cigarette taxation, it is politically driven: only states with non-term limited governors react (providing evidence of yardstick competition), especially as the election year approaches. Additionally, cigarette taxes tend to be lower when the election year approaches, but again only under non-term limited governors, while the existence of smokers in the state tends to reduce the level of cigarette taxation independently of the electoral cycle and of the presence of a term limited governor.
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Bibliographic InfoPaper provided by University of Ferrara, Department of Economics in its series Working Papers with number 201116.
Length: 33 pages
Date of creation: 11 Nov 2011
Date of revision:
vertical tax competition; yardstick competition; termlimit; election year;
Find related papers by JEL classification:
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-11-21 (Accounting & Auditing)
- NEP-ALL-2011-11-21 (All new papers)
- NEP-PBE-2011-11-21 (Public Economics)
- NEP-PUB-2011-11-21 (Public Finance)
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