Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/110236 
Year of Publication: 
2015
Series/Report no.: 
Diskussionsbeiträge No. 2015/15
Publisher: 
Freie Universität Berlin, Fachbereich Wirtschaftswissenschaft, Berlin
Abstract: 
In many countries organized as federations, fiscal-equalization schemes have been implemented to mitigate vertical or horizontal imbalances. Such schemes usually imply that the member states of the federation can only partly internalize marginal tax revenue before redistribution. Aside from this internalized revenue, referred to as the marginal tax-back rate, the remainder is redistributed. We investigate the extent to which extent state-level authorities in such federation under-exploit their tax bases. By means of a stylized model we show that the member states have an incentive to align the effective tax rates on their residents with the level of the tax-back rate. We empirically test the model using state-level and micro-level taxpayer data, OLS regressions and natural experiments. Our empirical findings support the results from our theoretical model. Particularly, we find that states with a higher marginal tax-back rate exploit the tax base to a higher extent.
Subjects: 
fiscal federalism
fiscal externalities
natural experiment
treatment analysis
statistical matching
JEL: 
C21
H21
H77
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.