Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22983
Authors: 
Crivelli, Ernesto
Volpe Martincus, Christian
Year of Publication: 
2007
Series/Report no.: 
Bonn Econ Discussion Papers 8/2007
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 findings 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
Social Media Mentions:

Files in This Item:
File
Size
264.19 kB





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