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Title:Horizontal and Vertical Tax Externalities in a Multicountry World PDF Logo
Authors:Crivelli, Ernesto
Volpe Martincus, Christian
Issue Date:2007
Series/Report no.:Bonn econ discussion papers 2007,8
Abstract:Recent contributions on tax competition recognize the interaction between both horizontal and vertical tax externalities in a single federation. In this paper, we extend the theoretical analysis to a framework with multiple federations (a Union). We show that the relative size of a federation in the Union determines not only the extent but also the direction of the tax ine? ciency. The equilibrium state tax is lower in relative small countries but surprisingly, vertical externalities are more likely to dominate there, i.e. for a relative small federation, the non-cooperative local tax rate is lower than for a relative large federation but still higher than the one observed in absence of tax competition. This result seems to contradict recent theoretical …ndings where a lower equilibrium state tax is followed by a dominant horizontal externality.
Subjects:Tax Competition
Horizontal Externalities
Vertical Externalities
Fragmentation
Fiscal Federalism
JEL:H3
H21
H7
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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