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Ad Valorem Taxes and the Fiscal Gap in Federations

Listed author(s):
  • Christos Kotsogiannis

    (Department of Economics, University of Exeter)

  • Diego Martinez

    (Department of Economics, University Pablo Olavide)

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.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0703.pdf
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Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0703.

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Date of creation: 2007
Handle: RePEc:exe:wpaper:0703
Contact details of provider: Postal:
Streatham Court, Rennes Drive, Exeter EX4 4PU

Phone: (01392) 263218
Fax: (01392) 263242
Web page: http://business-school.exeter.ac.uk/about/departments/economics/

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References listed on IDEAS
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  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, 04.
  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.
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