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Vertical income tax externalities and fiscal interdependence: Evidence from the US Model

Author

Listed:
  • Alejandro Esteller-Moré

    () (Institut d'Economia de Barcelona (IEB); Universitat de Barcelona (UB))

  • Albert Solé-Ollé

    () (Institut d'Economia de Barcelona (IEB); Universitat de Barcelona (UB))

Abstract

Concurrent taxation is a feature of many federal systems. As a result, the tax policy of one level of government affects the tax base of the other. A way to check the empirical relevance of this hypothesis is to test for the existence of interdependencies in the tax setting behaviour of various layers of government. Following this approach, this paper estimates the reaction of U.S. state personal income and general sales taxes to federal tax rates, taking into account the special features of the U.S. tax system. We find that when the federal government increases taxes, there is a significant positive response of state taxes.

Suggested Citation

  • Alejandro Esteller-Moré & Albert Solé-Ollé, 2000. "Vertical income tax externalities and fiscal interdependence: Evidence from the US Model," Working Papers 2000/1, Institut d'Economia de Barcelona (IEB).
  • Handle: RePEc:ieb:wpaper:185792art92
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal federalism; Tax deductibility; Vertical tax externalities;

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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