Vertical tax competition and consumption externalities in a federation with lobbying

Alejandro Esteller-Moré (), Umberto Galmarini and Leonzio Rizzo ()

Journal of Public Economics, 2012, vol. 96, issue 3, 295-305

Abstract: We consider a federation with two layers of government, in which Leviathan policy makers levy an excise tax on a consumption good that generates a negative externality and that is produced in an imperfectly competitive market. When both layers of government are allowed to tax, policy choices are affected also by vertical tax competition. In this setting, tax policy in general is not efficient. We then examine how special interest groups may influence tax policy by lobbying the policy makers. We find that, depending on market structure and on the level of the externality, lobbying can improve efficiency, and that tax-base sharing by two layers of government can be more efficient than taxation by a single layer.

Keywords: Vertical tax externalities; Tax assignment; Pressure groups; Excise taxes; Leviathan policy makers (search for similar items in EconPapers)
JEL-codes: D70 H71 H77 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:96:y:2012:i:3:p:295-305

DOI: 10.1016/j.jpubeco.2011.11.003

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