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Optimal federal capital income taxation


  • Kotsogiannis, C.
  • Makris, M.


Intergovernmental grants are not available to all federations. In this paper, optimal federal tax policies in a multileveled government framework are studied, when the federal authority has no access to intergovernmental grants, and the state governments implement the residence principle. A vertical fiscal externality exists. The federal government, using the available tax instruments, has a dual role; it corrects the inefficiences that arise from the non-cooperative behaviour of the state governments and also redistributes income. It is shown that there may exist a conflict in the redistributional considerations of the federal government and the achievement of production efficiency between the federation and the rest of the world.

Suggested Citation

  • Kotsogiannis, C. & Makris, M., 1998. "Optimal federal capital income taxation," Discussion Paper Series In Economics And Econometrics 9820, Economics Division, School of Social Sciences, University of Southampton.
  • Handle: RePEc:stn:sotoec:9820

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