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Spillover Effects in a Federal Country with Vertical Tax Externalities

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Listed:
  • Lisa Grazzini

    () (Dipartimento di Scienze per l'Economia e l'Impresa)

  • Alessandro Petretto

    () (Dipartimento di Scienze per l'Economia e l'Impresa)

Abstract

We analyse how spillover effects may affect the choice of a federal tax rate in a federal country with vertical tax externalities. Our main result shows under which conditions the federal tax rate with spillover effects is lower or higher than the federal tax rate without spillover effects. The effects of vertical tax externalities can be modified by the reaction of the federal government to the horizontal externality due to spillover effects.

Suggested Citation

  • Lisa Grazzini & Alessandro Petretto, 2015. "Spillover Effects in a Federal Country with Vertical Tax Externalities," Working Papers - Economics wp2015_08.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  • Handle: RePEc:frz:wpaper:wp2015_08.rdf
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    Keywords

    Fiscal federalism; Median voter; Positive spillovers;

    JEL classification:

    • 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
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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