Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77092
Authors: 
Bönke, Timm
Jochimsen, Beate
Schröder, Carsten
Year of Publication: 
2013
Series/Report no.: 
DIW Discussion Papers 1307
Abstract: 
In many federations, fiscal equalization schemes soften fiscal imbalances across the member states. Such schemes usually imply that the member states internalize only a small fraction of the additional tax revenue from an expansion of the state-specific tax bases, while the remainder of the additional tax revenue is redistributed horizontally or vertically. We address the question as to which extent state-level jurisdictions in such a federation underexploit their tax bases. By means of a stylized model we show that the state authorities in such a federation have incentives to align the effective tax rates of their residents to the internalized fraction of marginal tax revenue. We empirically test the model using three setups: one state level exercise and two micro level exercises using administrative income-tax data in form of an OLS regression and a natural-experiments design. All setups support the results from our theoretical model.
Subjects: 
fiscal federalism
taxation
tax-back rate
fiscal externalities
JEL: 
C21
H21
H77
Document Type: 
Working Paper

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