Mergers in Fiscal Federalism

Marie-Laure Breuillé () and Skerdilajda Zanaj

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: This paper analyzes mergers of regions in a two-tier setting with both horizontal and vertical tax competition. The merger of regions induces three effects on regional and local tax policies, which are transmitted both horizontally and vertically: i) an alleviation of tax competition at the regional level, ii) a rise in the regional tax base, and iii) a larger internalization of tax externalities generated by cities. It is shown that the merger of regions increases regional tax rates while decreasing local tax rates. This Nash equilibrium with mergers is then compared with the Nash equilibrium with coalitions of regions.

Keywords: Mergers; Tax Competition; Fiscal Federalism (search for similar items in EconPapers)
JEL-codes: H25 H73 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-acc, nep-pbe, nep-pub and nep-ure
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Related works:
Journal Article: Mergers in fiscal federalism (2013)
Working Paper: Mergers in Fiscal Federalism (2010)
Working Paper: Mergers in Fiscal Federalism (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:10-10

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