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Ad Valorem Taxes and the Fiscal Gap in Federations

Author

Listed:
  • Christos Kotsogiannis

    (Department of Economics, University of Exeter)

  • Diego Martinez

    (Department of Economics, University Pablo Olavide)

Abstract

This paper investigates the implications of vertical fiscal externalities for the optimal federal tax and the sign of fiscal gap in the presence of ad valorem taxation. It is shown that the federal government can always achieve the second-best optimum for public good provision. The sign of the fiscal gap is, in general, ambiguous. The consequence of this is that a precise evaluation of the fiscal gap requires an explicit consideration of the underlying fundamentals of the federal economy.

Suggested Citation

  • Christos Kotsogiannis & Diego Martinez, 2007. "Ad Valorem Taxes and the Fiscal Gap in Federations," Discussion Papers 0703, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:0703
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    File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0703.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Michael Keen & Christos Kotsogiannis, 2003. "Leviathan and Capital Tax Competition in Federations," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 177-199, April.
    3. Kotsogiannis, Christos & Makris, Miltiadis, 2002. "On production efficiency in federal systems," Economics Letters, Elsevier, vol. 76(2), pages 281-287, July.
    4. Robin Boadway & Michael Keen, 1996. "Efficiency and the optimal direction of federal-state transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(2), pages 137-155, May.
    5. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:kap:itaxpf:v:24:y:2017:i:5:d:10.1007_s10797-016-9435-y is not listed on IDEAS
    2. Diego Martínez, 2008. "Optimal Federal Taxes with Public Inputs," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(4), pages 422-433, December.
    3. Willem Sas, 2015. "Commuting in a federation: Horizontal and vertical tax externalities revisited," ERSA conference papers ersa15p690, European Regional Science Association.
    4. Diego Martinez-Lopez & Tomas Sjöngren, 2014. "Vertical externalities with lump-sum taxes: how much difference does unemployment make?," European Journal of Government and Economics, Europa Grande, vol. 3(1), pages 75-87, June.
    5. Diego Martínez, 2014. "Vertical externalities revisited: new results with public inputs and unit taxation," Working Papers. Collection A: Public economics, governance and decentralization 1403, Universidade de Vigo, GEN - Governance and Economics research Network.

    More about this item

    Keywords

    Ad valorem taxes; fiscal gap; externalities; fiscal federalism;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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