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Shared Tax Sources and Public Expenditures

  • Matthias Wrede

This paper deals with a specific vertical assignment of public functions in a federation: Two levels of government share both the same tax source and expenditure on a productivity increasing public service. We consider surplus maximizing Leviathan governments which provide public services in order to increase their potential tax base. The Nash equilibrium is characterized by overtaxation and relative to surplus maximization—depending on whether or not the public goods are sufficiently complementary with the entire tax base—either underprovision or overprovision of the public service. The implications of these results, in terms of welfare and potential use for earmarking taxes are also considered. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1008752403978
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 7 (2000)
Issue (Month): 2 (March)
Pages: 163-175

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:2:p:163-175
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  1. Robin Boadway & Michael Keen, 1996. "Efficiency and the optimal direction of federal-state transfers," International Tax and Public Finance, Springer, vol. 3(2), pages 137-155, May.
  2. Brennan, Geoffrey & Buchanan, James M., 1978. "Tax instruments as constraints on the disposition of public revenues," Journal of Public Economics, Elsevier, vol. 9(3), pages 301-318, June.
  3. 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.
  4. Mintz, J. & Tulkens, H., 1984. "Commodity tax competition between member states of a federation: equilibrium and efficiency," CORE Discussion Papers 1984027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Inman, Robert P. & Rubinfeld, Daniel L., 1996. "Designing tax policy in federalist economies: An overview," Journal of Public Economics, Elsevier, vol. 60(3), pages 307-334, June.
  6. Kanbur, Ravi & Keen, Michael, 1991. "Tax competition and tax coordination : when countries differ in size," Policy Research Working Paper Series 738, The World Bank.
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