Politics or mobility? Evidence from us excise taxation

Alejandro Esteller-Moré () and Leonzio Rizzo ()
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Alejandro Esteller-Moré: Universitat de Barcelona & IEB
Leonzio Rizzo: Università di Ferrara & IEB

No 2010/3, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: We test for the state interdependence of gasoline and cigarette taxation in the US (1975-2006). We estimate a tax reaction function, and find that state interdependence is due solely to yardstick competition, since any interaction disappears completely in the case of states with lame duck governors. This result holds for both taxes: the short-run reaction of those states whose governor is eligible to stand for reelection is 0.13 and 0.21 for gasoline and cigarette taxation, respectively. In the long run, the cigarette tax rates levied in a jurisdiction match those of its neighbors perfectly, while the long-run reaction in the case of gasoline is much lower at 0.72.

Keywords: Tax competition; political accountability; excise taxes (search for similar items in EconPapers)
JEL-codes: H71 H77 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010
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