Vertical externalities revisited: new results with public inputs and unit taxation

Diego Martínez

No 1403, Working Papers. Collection A: Public economics, governance and decentralization from Universidade de Vigo, GEN - Governance and Economics research Network

Abstract: This paper studies the provision of public inputs in a federal system with unit taxation on labor. We use a model with vertical tax and expenditure externalities to analyze the e¢ ciency of equilibria under di¤erent settings, particularly Nash and Stackelberg equilibria. Our results discuss some ?ndings from the previous literature. First, both vertical externalities are interrelated each other. Second, the condition for production e¢ ciency in the public sector becomes irrelevant to assess optimality. And third, the replication of the second-best outcome by the federal government behaving as Stackelberg leader crucially depends on the states?reaction function.

Keywords: Fiscal federalism; vertical externality; productive public spending. (search for similar items in EconPapers)
JEL-codes: H2 H4 H7 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-06
New Economics Papers: this item is included in nep-pbe and nep-pub
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http://infogen.webs.uvigo.es/WP/WP1403.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Vertical Externalities Revisited: New Results with Public Inputs and Unit Taxation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:gov:wpaper:1403

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