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Should tax bases overlap in a federation with lobbying?

Author

Listed:
  • Alejandro Esteller-Moré

    () (Universitat de Barcelona & IEB)

  • Umberto Galmarini

    () (Università dell'Insubria)

  • Leonzio Rizzo

    () (Università di Ferrara & IEB)

Abstract

We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers of government is not optimal either when the influence of the lobby is weak, whatever the degree of market power. We also examine a richer set of tax setting outcomes, by considering the possibility that state policy makers have heterogeneous tax policy objectives.

Suggested Citation

  • Alejandro Esteller-Moré & Umberto Galmarini & Leonzio Rizzo, 2010. "Should tax bases overlap in a federation with lobbying?," Working Papers 2010/8, Institut d'Economia de Barcelona (IEB).
  • Handle: RePEc:ieb:wpaper:2010/4/doc2010-8
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    Cited by:

    1. Sandro Brusco & Luca Colombo & Umberto Galmarini, 2010. "Local Governments Tax Autonomy, Lobbying, and Welfare," Department of Economics Working Papers 10-01, Stony Brook University, Department of Economics.

    More about this item

    Keywords

    vertical tax externalities; tax assignment; lobbying; specific taxation;

    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
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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