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Optimal income taxation and decentralized fiscal federalism

Listed author(s):
  • Aronsson, Thomas
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    This paper concerns redistribution and public good provision under asymmetric information, which are here ingredients of a policy-problem facing each member state (nation) of an economic federation with decentralized leadership. Each member state is assumed to have its own redistributive policy and pattern of public consumption, whereas the federal level redistributes (ex-post) between the member states. The results show how and why federal ex-post redistribution may modify the use of income taxation and public good provision at the national level, relative to the policy outcome in the absence of a federal government, as well as how the national policy incentives depend on whether or not the federal government uses distortionary taxes.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0166-0462(10)00010-4
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    Article provided by Elsevier in its journal Regional Science and Urban Economics.

    Volume (Year): 40 (2010)
    Issue (Month): 4 (July)
    Pages: 187-195

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    Handle: RePEc:eee:regeco:v:40:y:2010:i:4:p:187-195
    Contact details of provider: Web page: http://www.elsevier.com/locate/regec

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    1. Thomas Aronsson Aronsson & Thomas Jonsson & Tomas Sjögren, 2006. "Environmental Policy and Optimal Taxation in a Decentralized Economic Federation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(3), pages 437-454, September.
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    3. David E. Wildasin, 2004. "The Institutions of Federalism: Toward an Analytical Framework," Public Economics 0403006, EconWPA.
    4. Aronsson, Thomas & Blomquist, Sören, 2004. "Redistribution and Provision of Public Goods in an Economic Federation," Umeå Economic Studies 636, Umeå University, Department of Economics.
    5. Thomas Aronsson & Magnus Wikström, 2001. "Optimal Taxes and Transfers in a Multilevel Public Sector," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(2), pages 158-158, February.
    6. J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
    7. Alexander Fink & Thomas Stratmann, 2009. "Institutionalized Bailouts and Fiscal Policy: The Consequences of Soft Budget Constraints," CESifo Working Paper Series 2827, CESifo Group Munich.
    8. Bev Dahlby, 1996. "Fiscal externalities and the design of intergovernmental grants," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 397-412, July.
    9. BOADWAY, Robin & MARCHAND, Maurice & VIGNEAULT, Marianne, "undated". "The consequences of overlapping tax bases for redistribution and public spending in a federation," CORE Discussion Papers RP 1326, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Boadway, R & Keen, M, 1996. "Efficiency and the optimal direction of federal-state transfers," IFS Working Papers W96/01, Institute for Fiscal Studies.
    11. Edmund S. Phelps, 1973. "Taxation of Wage Income for Economic Justice," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 331-354.
    12. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
    13. Silva, Emilson C. D. & Caplan, Arthur J., 1997. "Transboundary Pollution Control in Federal Systems," Journal of Environmental Economics and Management, Elsevier, vol. 34(2), pages 173-186, October.
    14. Marko Köthenbürger, 2006. "Ex-Post Redistribution in a Federation: Implications for Corrective Policy," CESifo Working Paper Series 1754, CESifo Group Munich.
    15. Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 261-267.
    16. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
    17. Caplan, Arthur J. & Silva, Emilson C. D., 1999. "Federal Acid Rain Games," Journal of Urban Economics, Elsevier, vol. 46(1), pages 25-52, July.
    18. Thomas Aronsson & Tomas Sjögren, 2004. "Is the Optimal Labor Income Tax Progressive in a Unionized Economy?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 661-675, December.
    19. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
    20. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    21. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    22. Timothy Goodspeed, 2002. "Bailouts in a Federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 409-421, August.
    23. Vidar Christiansen, 1981. "Evaluation of Public Projects under Optimal Taxation," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 447-457.
    24. Martin Besfamille & Ben Lockwood, 2008. "Bailouts In Federations: Is A Hard Budget Constraint Always Best?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 577-593, 05.
    25. Marko Koethenbuerger, 2003. "Tax Competition in a Fiscal Union with Decentralized Leadership," CESifo Working Paper Series 943, CESifo Group Munich.
    26. Anthony B. Atkinson, 1976. "Optimal Taxation and the Direct versus Indirect Tax Controversy," Working Papers 247, Queen's University, Department of Economics.
    27. Dahlby, Bev & Wilson, Leonard S., 2003. "Vertical fiscal externalities in a federation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 917-930, May.
    28. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, vol. 77(2), pages 265-284, August.
    29. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
    30. Motohiro Sato, 2000. "Fiscal Externalities and Efficient Transfers in a Federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(2), pages 119-139, March.
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