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Vertical income tax externalities and fiscal interdependence: evidence from the US

  • Esteller-Moré, Álex
  • Solé-Ollé, Albert

Concurrent taxation is a feature of many federal systems. As a consequence of this fact, the tax policy of one level of government affects the tax base of the other. This paper carries out a theoretical analysis of the interdependent tax-setting decisions of federal and regional governments, paying special attention to institutional features that characterise the U.S. federal system in practice and that formally link the taxes employed at various levels of government (i.e.: tax deductibility). The developed hypotheses are tested with data corresponding to the U.S. personal income taxes for the last decade. We find that when the federal government increases taxes, there is a significant positive response of regional taxes.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 99-28.

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Date of creation: 1999
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Handle: RePEc:zbw:zewdip:5243
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