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Fiscal competition and reality: A time series approach

  • Zsolt Becsi
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    Strategic interjurisdictional behavior and the interaction over time of the mean and dispersion of average tax rates across states are analyzed in a vector autoregression model. Variance decompositions reveal that fiscal competition explains roughly one-third of the time variation of state and local taxes. Impulse response functions identify the type of fiscal competition and the characteristics of leaders and followers. Local tax dynamics agree with Wildasin's (1988) results on expenditure competition with significant short- and medium-run effects but insignificant long-run effects. State tax dynamics conform to tax export competition with significant effects occurring over a relatively short time.

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    Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper No. with number 98-19.

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    Date of creation: 1998
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    Handle: RePEc:fip:fedawp:98-19
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    1. Zsolt Becsi, 1996. "Do state and local taxes affect relative state growth?," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 18-36.
    2. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 689-701, October.
    3. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    4. Ravi Kanbur & Michael Keen, 1991. "Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size," Working Papers 819, Queen's University, Department of Economics.
    5. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November.
    6. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
    7. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
    8. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
    9. Coates, Dennis, 1993. "Property tax competition in a repeated game," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 111-119, March.
    10. Beck, John H., 1983. "Tax competition, uniform assessment, and the benefit principle," Journal of Urban Economics, Elsevier, vol. 13(2), pages 127-146, March.
    11. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March.
    12. Roger H. Gordon, 1982. "An Optimal Taxation Approach to Fiscal Federalism," NBER Working Papers 1004, National Bureau of Economic Research, Inc.
    13. Gilbert E. Metcalf, 1993. "Tax exporting, federal deductibility, and state tax structure," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 109-126.
    14. Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-42, October.
    15. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    16. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-57, September.
    17. 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.
    18. Wilson, John D., 1985. "Optimal property taxation in the presence of interregional capital mobility," Journal of Urban Economics, Elsevier, vol. 18(1), pages 73-89, July.
    19. Mintz, J. & Tulkens, H., 1984. "Commodity tax competition between member states of a federation: equilibrium and efficiency," CORE Discussion Papers 1984027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Arnott, Richard & Grieson, Ronald E., 1981. "Optimal fiscal policy for a state or local government," Journal of Urban Economics, Elsevier, vol. 9(1), pages 23-48, January.
    21. de CROMBRUGGHE, Alain & TULKENS, Henry, . "On Pareto improving commodity tax changes under fiscal competition," CORE Discussion Papers RP 895, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    22. David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis.
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