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Fiscal externalities in multilevel tax structures: Evidence from concurrent income taxation

Author

Listed:
  • Federico Revelli

    (Department of Economics and Statistics "S. Cognetti de Martiis," University of Torino, Campus Luigi Einaudi)

  • Tsung-Sheng Tsai

    (Department of Economics, National Taiwan University)

  • Roberto Zotti

    (Department of Economics and Statistics "S. Cognetti de Martiis," University of Torino, Campus Luigi Einaudi)

Abstract

This paper exploits the multi-tiered structure of personal income taxation in Italy to investigate within-tier (horizontal) and between-tiers (vertical and diagonal) fiscal externalities. Estimation of an unrestricted income tax reaction function on municipalities located at internal regional borders using off-border Wald-type grouping variables as well as the staggered schedule of mayoral elections as instruments for endogenous spatial lags reveals strong positive spatial dependence in municipal tax rates. On the other hand, there is no evidence of a response of municipal tax rates to regional tax policies, suggesting that border discontinuity estimators that rely on consolidated spatial specifications (lower-plus-upper-tier tax rates) impose restrictions on the parameters of the reaction function that are unwarranted in these circumstances.

Suggested Citation

  • Federico Revelli & Tsung-Sheng Tsai & Roberto Zotti, 2022. "Fiscal externalities in multilevel tax structures: Evidence from concurrent income taxation," Working Papers 2201, National Taiwan University, Department of Economics, revised Jan 2022.
    • Handle: RePEc:ntw:wpaper:2201
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    More about this item

    Keywords

    fiscal externalities; income taxation; grouping instrumental variable; border discontinuity estimator;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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