Vertical fiscal externalities in a federation

Dahlby, Bev; Wilson, Leonard S.

doi:10.1016/s0047-2727(01)00137-2

Cited by 86 publications

(103 citation statements)

References 9 publications

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“…Such a re…nement would need to include the role of individual member states and the externalities that link the member states. Dahlby and Wilson (2003) make some progress in this respect by analyzing a model that includes …scal externalities. Their model has both a central government and a local government.…”

Section: Application Of the Mcfmentioning

confidence: 99%

The Marginal Cost of Public Funds in Growing Economies

Hashimzade¹,

Myles²

2014

Annals of Economics and Statistics

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The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractThe marginal cost of public funds (MCF ) measures the cost to the economy of raising government revenue. The MCF can be used to guide reform of the tax system and to determine an e¢ cient level of government expenditure. It can also be used as an input into cost-bene…t analysis. Previous applications of the concept have developed a methodology in a context of a static economy. We develop the methodology of the MCF to extend the concept to growing economies. The extended concept is then applied to variants of the Barro endogenous growth model with a productive public input. The MCF is used to address the choice between labour and capital taxes and to explore the implications of infrastructural spill-overs across regions.JEL Classi…cation: E6, H4, H7

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Section: Application Of the Mcfmentioning

confidence: 99%

The Marginal Cost of Public Funds in Growing Economies

Hashimzade¹,

Myles²

2014

Annals of Economics and Statistics

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“…Hence, in presence of mobility of households and firms, state governments will overestimate the marginal costs of public funds leading to too little sub-national spending. For the case of vertical fiscal externalities, the basic argument in Johnson (1988), Boadway and Keen (1996), Dahlby (1994), Boadway, Marchand and Vigneault (1998), and more recently Rizzo (2008) and Dahlby and Wilson (2003), is that the federal and sub-national governments might not take into account how their policies affect the policy of vertically differentiated governments. Therefore, these governments will underestimate the marginal costs of public funds associated with raising tax revenue leading to too much public spending.…”

Section: Literature Reviewmentioning

confidence: 99%

Political Competition and the (In)Effectiveness of Redistribution in a Federation

Kochi¹,

Rodríguez²

2013

IJEF

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We analyze politico-economic conditions in which the effectiveness of public redistribution might be low in a federation. In our economy, the central government redistributes income while local governments provide a pro poor public good. If local public spending falls due to the ex-post tax-transfer distribution of income engineered by the central government then public redistribution might be less effective in redistributing welfare. In this paper we address this issue. Our main findings are: first, if the party on power represents voters with a labor wage below the average wage and the aggregate net transfer from the redistributive program is negative for residents in the locality then public spending falls in this district. Second, if local governments of all districts are controlled by parties representing voters with high marginal utilities of income and labor wages below the nationwide average wage then public redistribution induces all local governments to reduce spending.

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“…While early studies focused on vertical externalities in a single market, research has extended to consider the impacts of co-occupancy in a multiple market including studies by Dahlby (1996), Keen (1998), Hoyt (2001), Dahlby, Mintz and Wilson (2000), and Dahlby (2001), and Dahlby and Wilson (2003). While I also examine tax policies in a hierarchical system of governments, I depart from previous studies in a several respects.…”

Section: Introductionmentioning

confidence: 98%

“…Among the early theoretical contributions were Johnson (1988) and Flowers (1988) and continued with Dahlby (1996Dahlby ( , 2008, Boadway and Keen (1996), Boadway, Marchand and Vigneault (1998). More recent contributions include Boadway, Cuff and Marchand (2003), Keen (1998), Keen and Kotsogiannis (2002, 2004, Hoyt (2001), Dahlby and Wilson (2003), Wrede (1996Wrede ( , 2000, Keen and Kotsogiannis (2002), and Wilson and Janeba (2005) among others.…”

Section: Introductionmentioning

confidence: 99%

The assignment and division of the tax base in a system of hierarchical governments

Hoyt

2017

Int Tax Public Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Assignment and Division of the Tax Base in a System of Hierarchical Governments Abstract Vertical externalities, changes in one level of government's policies that affect the budget of another level of government, may lead to non-optimal government policies. These externalities are associated with tax bases that are shared or "co-occupied" by two levels of government. Here I consider whether the co-occupancy of tax bases is desirable. I examine the optimal extent of the tax bases of a lower level of government (local) and a higher level (state). I find that it is optimal to have co-occupancy in the absence of other corrective policies if commodities in tax base are substitutes. Further, if the state government can differentially tax the co-occupied segment of the tax base and the segment it alone taxes it will obtain the (second-best) outcome obtained with other policy instruments such as intergovernmental grants. Finally, if there are horizontal externalities generated by cross-border shopping, there is still reason to co-occupy the tax base if commodities are substitutes. As well, local governments should have those commodities with the lowest cross-border shopping costs in their tax base. Terms of use: Documents inJEL-Codes: H200, H710, H730, R120, R280, R410.

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Vertical fiscal externalities in a federation

Cited by 86 publications

References 9 publications

The Marginal Cost of Public Funds in Growing Economies

The Marginal Cost of Public Funds in Growing Economies

Political Competition and the (In)Effectiveness of Redistribution in a Federation

The assignment and division of the tax base in a system of hierarchical governments

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