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Cross-Border Shopping in a Federalist Economy

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  • Vander LUCAS

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES), Universidade Catolica de Brasilia,Brazil)

Abstract

The purpose of this paper is to consider an economy in which incorporates cross-border shopping and where the different levels of government worry about the well-being of their citizens. We assume a federalist economy with a central government and two regions with specific characteristics. Two kinds of externalities, horizontal and vertical, arise and we show the possibilities to internalise them. With the governments of symmetric regions behaving as Nash players they would optimally set their tax rate and replicate the unitary nation optimum. Finally, we show how the central government as a Stackelerg leader can adjust its fiscal instruments so that the tax externalities are also internalised.

Suggested Citation

  • Vander LUCAS, 2001. "Cross-Border Shopping in a Federalist Economy," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 28 May 2002.
  • Handle: RePEc:ctl:louvir:2002018
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2002-18.pdf
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    References listed on IDEAS

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    5. Michael Keen, 1998. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 454-485, September.
    6. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-633, November.
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    More about this item

    Keywords

    Cross-Border Shopping; Commodity Tax Competition; Fiscal Federalism;

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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