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Vertical tax competition and consumption externalities in a federation with lobbying

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  • Esteller-Moré, Alejandro
  • Galmarini, Umberto
  • Rizzo, Leonzio

Abstract

We consider a federation with two layers of government, in which Leviathan policy makers levy an excise tax on a consumption good that generates a negative externality and that is produced in an imperfectly competitive market. When both layers of government are allowed to tax, policy choices are affected also by vertical tax competition. In this setting, tax policy in general is not efficient. We then examine how special interest groups may influence tax policy by lobbying the policy makers. We find that, depending on market structure and on the level of the externality, lobbying can improve efficiency, and that tax-base sharing by two layers of government can be more efficient than taxation by a single layer.

Suggested Citation

  • Esteller-Moré, Alejandro & Galmarini, Umberto & Rizzo, Leonzio, 2012. "Vertical tax competition and consumption externalities in a federation with lobbying," Journal of Public Economics, Elsevier, vol. 96(3), pages 295-305.
  • Handle: RePEc:eee:pubeco:v:96:y:2012:i:3:p:295-305
    DOI: 10.1016/j.jpubeco.2011.11.003
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    Cited by:

    1. repec:kap:itaxpf:v:24:y:2017:i:3:d:10.1007_s10797-016-9404-5 is not listed on IDEAS
    2. Florence TOUYA, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers 2015-2016_12, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    3. repec:kap:enreec:v:67:y:2017:i:4:d:10.1007_s10640-015-9995-9 is not listed on IDEAS
    4. Diego Martínez, 2014. "Vertical externalities revisited: new results with public inputs and unit taxation," Working Papers. Collection A: Public economics, governance and decentralization 1403, Universidade de Vigo, GEN - Governance and Economics research Network.
    5. repec:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9415-2 is not listed on IDEAS
    6. repec:kap:jincot:v:17:y:2017:i:4:d:10.1007_s10842-017-0244-5 is not listed on IDEAS
    7. Florence TOUYA, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers 2015-2016_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.

    More about this item

    Keywords

    Vertical tax externalities; Tax assignment; Pressure groups; Excise taxes; Leviathan policy makers;

    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
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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