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A Decentralization Theorem of Taxation

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  • Vilen Lipatov
  • Alfons Weichenrieder

Abstract

In the European Union (EU), there are longstanding and ongoing pressures toward a tax that is levied on the EU level to substitute for national contributions. We discuss conditions under which such a transition can make sense, starting from what we call a ‘decentralization theorem of taxation’ that is analogous to Oates’ (1972) famous result that in the absence of spillover effects and economies of scale, decentralized public good provision weakly dominates central provision. We then drop assumptions that turn out to be unnecessary for this result. While spillover effects of taxation may call for central rules for taxation, as long as spillover effects do not depend on the intra-regional distribution of the tax burden, decentralized taxation plus tax coordination is found superior to a union-wide tax.

Suggested Citation

  • Vilen Lipatov & Alfons Weichenrieder, 2016. "A Decentralization Theorem of Taxation," CESifo Economic Studies, CESifo Group, vol. 62(2), pages 289-300.
    • Handle: RePEc:oup:cesifo:v:62:y:2016:i:2:p:289-300.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifw003
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    Cited by:

    1. Shafik Hebous & Alfons Weichenrieder, 2016. "Toward a Mutualization of European Unemployment Insurance? On Limiting the Downsides of a Fiscal Transfer System for the Eurozone," CESifo Economic Studies, CESifo Group, vol. 62(2), pages 376-395.
    2. Eren Gürer, 2021. "Equity-efficiency implications of a European tax and transfer system," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(2), pages 301-346, August.
    3. Hebous, Shafik & Weichenrieder, Alfons J., 2015. "Towards a fiscal union? On the acceptability of a fiscal transfer system in the eurozone," SAFE White Paper Series 28, Leibniz Institute for Financial Research SAFE.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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