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A Decentralization Theorem of Taxation

Author

Listed:
  • 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, 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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    References listed on IDEAS

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    1. Ben Lockwood, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 313-337.
    2. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 567-586.
    3. Goodspeed, Timothy J., 2000. "Tax structure in a federation," Journal of Public Economics, Elsevier, vol. 75(3), pages 493-506, March.
    4. 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.
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    Cited by:

    1. 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, Goethe University Frankfurt, Research Center SAFE - Sustainable Architecture for Finance in Europe.

    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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