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Tax mix corners and other kinks

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Abstract

This paper models the local tax mix determination process in the presence of state-wide tax limitations and shows how excess sensitivity of local public spending to grants (the conventionally and somewhat misleadingly called flypaper effect) arises in the endogenously generated constrained tax mix and cannot in general be taken as a symptom of local government overspending. By means of a panel data switching regression approach that allows for fixed effects and endogenous selection, the paper exploits the clustering of Italian Provinces at the corners produced by upper and lower tax limitations, and provides evidence of considerable cap-generated excess sensitivity

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  • Revelli, Federico, 2010. "Tax mix corners and other kinks," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201017, University of Turin.
    • Handle: RePEc:uto:dipeco:201017
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    Cited by:

    1. Federico Revelli, 2013. "Tax Mix Corners and Other Kinks," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 741-776.
    2. Stijn Goeminne & Carine Smolders & Elke Vandorpe, 2017. "The real impact of a one-off fiscal restriction: empirical evidence of a flypaper effect in Flemish municipalities," Public Money & Management, Taylor & Francis Journals, vol. 37(4), pages 285-292, June.
    3. Federico Revelli, 2013. "Tax limits and local democracy," Working Papers 2013/29, Institut d'Economia de Barcelona (IEB).
    4. Buettner, Thiess & Poehnlein, Maximilian, 2024. "Tax competition effects of a minimum tax rate: Empirical evidence from German municipalities," Journal of Public Economics, Elsevier, vol. 236(C).
    5. Federico Revelli, 2012. "Business taxation and economic performance in hierarchical government structures," Working Papers 2012/12, Institut d'Economia de Barcelona (IEB).
    6. Revelli, Federico, 2013. "Tax Limits and Local Democracy," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201336, University of Turin.
    7. Chirok Han & Goeun Lee, 2017. "Efficient Estimation of Linear Panel Data Models with Sample Selection and Fixed Effects," Discussion Paper Series 1707, Institute of Economic Research, Korea University.
    8. Bram Mahieu & Benny Geys & Bruno Heyndels, 2017. "Fiscal Fairness as a Political Argument," Kyklos, Wiley Blackwell, vol. 70(4), pages 622-640, November.
    9. Revelli Federico, 2012. "Business taxation and economic performance in hierarchical government structures," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201204, University of Turin.

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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