Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/204899
Authors: 
Niepelt, Dirk
Year of Publication: 
2018
Series/Report no.: 
Discussion Papers 18-03
Abstract: 
We propose a theory of tax centralization in politico-economic equilibrium. Taxation has dynamic general equilibrium implications which are rationally internalized at the federal, but not at the regional level. The political support for taxation therefore differs across levels of government. Complementarities on the spending side decouple the equilibrium composition of spending and taxation and create a role for inter governmental grants. The model provides an explanation for the centralization of revenue, introduction of grants, and expansion of federal income taxation in the U.S. around the time of the New Deal. Quantitatively, it accounts for between 30% and 100% of the federal revenue share's doubling in the 1930s, and for the long-term increase in federal grants.
Subjects: 
Fiscal policy
Federalism
Politico-economic equilibrium
Markov equilibrium
Public goods
Grants
Political Economy
JEL: 
D72
E62
H41
H77
Document Type: 
Working Paper

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