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Spillover Effects in a Federal Country with Vertical Tax Externalities

Author

Listed:
  • Lisa Grazzini

    () (Università di Firenze)

  • Alessandro Petretto

    () (Università di Firenze)

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 standard result on inefficiently high tax rates due to 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 23, Società Italiana di Economia Pubblica.
    • Handle: RePEc:ipu:wpaper:23
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    References listed on IDEAS

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    More about this item

    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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