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Mergers in fiscal federalism

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  • Breuillé, Marie-Laure
  • Zanaj, Skerdilajda

Abstract

We analyze how the merger of regions affects capital tax competition in a two-tier territorial organization where both regions and cities share the same mobile tax base. We identify three effects generated by the merger of regions that impact, either directly or indirectly, both regional and local tax choices: i) an alleviation of tax competition at the regional level, ii) a scale effect in the provision of regional public goods, and iii) a larger internalization of vertical tax externalities generated by cities. We show that the merger of regions always increases regional tax rates while decreasing local tax rates. These results are robust to a change in the timing of the game.

Suggested Citation

  • Breuillé, Marie-Laure & Zanaj, Skerdilajda, 2013. "Mergers in fiscal federalism," Journal of Public Economics, Elsevier, vol. 105(C), pages 11-22.
  • Handle: RePEc:eee:pubeco:v:105:y:2013:i:c:p:11-22
    DOI: 10.1016/j.jpubeco.2013.02.009
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    Cited by:

    1. Agrawal, David R., 2016. "Local fiscal competition: An application to sales taxation with multiple federations," Journal of Urban Economics, Elsevier, vol. 91(C), pages 122-138.
    2. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, Elsevier.

    More about this item

    Keywords

    Mergers; Tax competition; Fiscal federalism;

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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