Should tax bases overlap in a federation with lobbying?

Alejandro Esteller-Moré (), Umberto Galmarini () and Leonzio Rizzo ()
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Alejandro Esteller-Moré: Universitat de Barcelona & IEB
Umberto Galmarini: Università dell'Insubria
Leonzio Rizzo: Università di Ferrara & IEB

No 2010/8, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers of government is not optimal either when the influence of the lobby is weak, whatever the degree of market power. We also examine a richer set of tax setting outcomes, by considering the possibility that state policy makers have heterogeneous tax policy objectives.

Keywords: vertical tax externalities; tax assignment; lobbying; specific taxation (search for similar items in EconPapers)
JEL-codes: D70 H71 H77 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010
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Citations: View citations in EconPapers (1)

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