(Uncontrolled) Aggregate shocks or vertical tax interdependence? Evidence from gasoline and cigarettes
Besley and Rosen (1998) were the first authors to empirically estimate the presence of vertical tax externalities. They tested it on gasoline and tobacco unitary taxes. However, they did not take into account the difference in cost of living across states: high cost areas pay less in real terms than low cost areas, since the nominal unit tax on cigarettes and gasoline does not differ according to the state in which it is applied. Consequently, we propose that vertical tax competition can be estimated by deflating all financial variables using the House Price Index (HPI), which is disaggregated by states. This produces a federal tax variable that is expressed in real terms and shows cross-sectional variation. This empirical strategy enabled us to disentangle the vertical interdependence between state and federal tax rates from aggregate shocks over time, using US data from 1975 to 2006 on gasoline and tobacco. We found significant horizontal tax competition, which was higher for cigarettes, but no vertical tax reaction. The results were robust to the period analyzed.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 93 403 46 46
Fax: 93 403 98 32
Web page: http://www.ieb.ub.edu
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chakravorty, Ujjayant & Nauges, Celine & Thomas, Alban, 2008. "Clean Air regulation and heterogeneity in US gasoline prices," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 106-122, January.
- Besley, Timothy J. & Rosen, Harvey S., 1998.
"Vertical externalities in tax setting: evidence from gasoline and cigarettes,"
Journal of Public Economics,
Elsevier, vol. 70(3), pages 383-398, December.
- Timothy J. Besley & Harvey S. Rosen, 1999. "Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes," NBER Working Papers 6517, National Bureau of Economic Research, Inc.
- Tim Besley & Harvey S. Rosen, 1997. "Vertical externalities in tax settings: evidence from gasoline and cigarettes," IFS Working Papers W97/23, Institute for Fiscal Studies.
- Rosen, Harvey S., 1979. "Housing decisions and the U.S. income tax : An econometric analysis," Journal of Public Economics, Elsevier, vol. 11(1), pages 1-23, February.
- Craig Brett & Joris Pinkse, 1997. "Those Taxes are all over the Map! A Test for Spatial Independence of Municipal Tax Rates in British Columbia," International Regional Science Review, , vol. 20(1-2), pages 131-151, April.
- Ben Lockwood & Giuseppe Migali, 2009.
"Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries,"
Royal Economic Society, vol. 119(536), pages 406-429, 03.
- Lockwood, Ben & Migali, Giuseppe, 2008. "Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries," The Warwick Economics Research Paper Series (TWERPS) 847, University of Warwick, Department of Economics.
- Leonzio Rizzo, 2008.
"Local government responsiveness to federal transfers: theory and evidence,"
International Tax and Public Finance,
Springer, vol. 15(3), pages 316-337, June.
- Rizzo, Leonzio, 2006. "Local government responsiveness to federal transfers: theory and evidence," MPRA Paper 5373, University Library of Munich, Germany.
- Louis Kaplow, 1995. "Regional Cost-of-Living Adjustments in Tax-Transfer Schemes," NBER Working Papers 5008, National Bureau of Economic Research, Inc.
- Jesse M. Shapiro, 2006.
"Smart Cities: Quality of Life, Productivity, and the Growth Effects of Human Capital,"
The Review of Economics and Statistics,
MIT Press, vol. 88(2), pages 324-335, May.
- Jesse M. Shapiro, 2005. "Smart Cities: Quality of Life, Productivity, and the Growth Effects of Human Capital," NBER Working Papers 11615, National Bureau of Economic Research, Inc.
- Michael Keen, 1998.
"Vertical Tax Externalities in the Theory of Fiscal Federalism,"
IMF Staff Papers,
Palgrave Macmillan, vol. 45(3), pages 454-485, September.
- Michael Keen, 1997. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Working Papers 97/173, International Monetary Fund.
- Devereux, Michael & Lockwood, Ben & Redoano, Michela, 2004.
"Horizontal And Vertical Indirect Tax Competition : Theory And Some Evidence From The Usa,"
The Warwick Economics Research Paper Series (TWERPS)
704, University of Warwick, Department of Economics.
- Devereux, M.P. & Lockwood, B. & Redoano, M., 2007. "Horizontal and vertical indirect tax competition: Theory and some evidence from the USA," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 451-479, April.
- Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2004. "Horizontal and Vertical Indirect Tax Competition: Theory and Some Evidence From the USA," CEPR Discussion Papers 4470, C.E.P.R. Discussion Papers.
- Glaeser, Edward & Saiz, Albert & Gyourko, Joseph, 2008.
"Housing Supply and Housing Bubbles,"
2962640, Harvard University Department of Economics.
- Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
- Davis, Morris A. & Palumbo, Michael G., 2008.
"The price of residential land in large US cities,"
Journal of Urban Economics,
Elsevier, vol. 63(1), pages 352-384, January.
- Morris A. Davis & Michael G. Palumbo, 2006. "The price of residential land in large U.S. cities," Finance and Economics Discussion Series 2006-25, Board of Governors of the Federal Reserve System (U.S.).
- Rork, Jonathan C., 2003. "Coveting Thy Neighbors' Taxation," National Tax Journal, National Tax Association, vol. 56(4), pages 775-87, December.
- Kimberley Scharf, 1999. "Scale Economies in Cross-Border Shopping and Commodity Taxation," International Tax and Public Finance, Springer, vol. 6(1), pages 89-99, February.
- Joseph Gyourko & Christopher Mayer & Todd Sinai, 2006.
NBER Working Papers
12355, National Bureau of Economic Research, Inc.
- Roback, Jennifer, 1988. "Wages, Rents, and Amenities: Differences among Workers and Regions," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 23-41, January.
- Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
- Glaeser, E. L., 1998.
"Should transfer payments be indexed to local price levels?,"
Regional Science and Urban Economics,
Elsevier, vol. 28(1), pages 1-20, January.
- Edward L. Glaeser, 1996. "Should Transfer Payments Be Indexed to Local Price Levels?," NBER Working Papers 5598, National Bureau of Economic Research, Inc.
- Ang-Olson, Jeffrey & Wachs, Martin & Taylor, Brian D., 1999. "Variable-Rate State Gasoline Taxes," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt1kf5d54p, Institute of Transportation Studies, UC Berkeley.
- Avinash Dixit, 1996. "Special-Interest Lobbying and Endogenous Commodity Taxation," Eastern Economic Journal, Eastern Economic Association, vol. 22(4), pages 375-388, Fall.
- Fredriksson, Per G. & Mamun, Khawaja A., 2008. "Vertical externalities in cigarette taxation: Do tax revenues go up in smoke?," Journal of Urban Economics, Elsevier, vol. 64(1), pages 35-48, July.
- David Albouy, 2009.
"The Unequal Geographic Burden of Federal Taxation,"
Journal of Political Economy,
University of Chicago Press, vol. 117(4), pages 635-667, 08.
- Kiviet, Jan F., 1995.
"On bias, inconsistency, and efficiency of various estimators in dynamic panel data models,"
Journal of Econometrics,
Elsevier, vol. 68(1), pages 53-78, July.
- Tom Doan, . "LSDVC: RATS procedure to estimate a dynamic FE model with correction for bias," Statistical Software Components RTS00111, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:ieb:wpaper:2009/10/doc2009-24. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.