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Financing multi-level government

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  • James, Simon

Abstract

The topic of multi-level taxation is currently highly relevant to two issues – European tax harmonisation and local government taxation in the UK. This paper presents a general economic analysis of multi-level government and taxation and the characteristics that might make a particular tax appropriate as a regional or local tax. In applying this analysis to European tax harmonisation it is clear that there is little harmony in the meaning of the term and a classification is presented. The main driving force for EU tax harmonisation has been the promotion of economic efficiency in the form of free trade in order to achieve the establishment and functioning of the European internal market. Differing regional needs and preferences regarding public sector expenditure and taxation may not always be properly recognised. It is suggested that a greater emphasis be placed on equity as an economic criteria in developing European tax harmonisation. Applying the analysis specifically to local government in the UK, it is clear that taxes on property meet most of the criteria relating both to taxes in general and lower level taxes in particular. However as in the case of European tax harmonisation, there seems to have been insufficient account taken of matters of equity as compared to economic efficiency. It has been the issue of equity that caused the demise of local authority domestic rates and the community charge in turn and continues to raise difficulties with the present council tax. It is therefore suggested that coverage of the income tax feature of council tax – council tax rebates – be extended. The experience to date suggests equity as well as economic efficiency is important in the successful development of both European tax harmonisation and UK local government finance and perhaps should be given greater prominence in the development of systems of multi-level taxation more generally.

Suggested Citation

  • James, Simon, 2004. "Financing multi-level government," MPRA Paper 26760, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:26760
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    File URL: https://mpra.ub.uni-muenchen.de/26760/1/MPRA_paper_26760.pdf
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    References listed on IDEAS

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    1. Allsopp, Christopher & Davies, Gareth & Vines, David, 1995. "Regional Macroeconomic Policy, Fiscal Federalism, and European Integration," Oxford Review of Economic Policy, Oxford University Press, vol. 11(2), pages 126-144, Summer.
    2. Bucovetsky, S., 1995. "Rent seeking and tax competition," Journal of Public Economics, Elsevier, vol. 58(3), pages 337-363, November.
    3. James, Simon & Alley, Clinton, 2002. "Tax compliance, self-assessment and tax administration," MPRA Paper 26906, University Library of Munich, Germany.
    4. Salanié, Bernard, 2011. "The Economics of Taxation," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262016346, January.
    5. Alesina, Alberto & Perotti, Roberto & Spolaore, Enrico, 1995. "Togetheror separately? Issues on the costs and benefits of political and fiscal unions," European Economic Review, Elsevier, vol. 39(3-4), pages 751-758, April.
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    Citations

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    Cited by:

    1. James, Simon, 2010. "Combining the contributions of behavioral economics and other social sciences in understanding taxation and tax reform," MPRA Paper 26289, University Library of Munich, Germany.
    2. James, Simon, 2012. "The contribution of behavioral economics to tax reform in the United Kingdom," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(4), pages 468-475.

    More about this item

    Keywords

    tax harmonisation; local government taxation; council tax;

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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