Cross-Border Shopping in a Federalist Economy

Vander Lucas ()

No 2002018, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The purpose of this paper is to consider an economy in which incorporates cross-border shopping and where the different levels of government worry about the well-being of their citizens. We assume a federalist economy with a central government and two regions with specific characteristics. Two kinds of externalities, horizontal and vertical, arise and we show the possibilities to internalise them. With the governments of symmetric regions behaving as Nash players they would optimally set their tax rate and replicate the unitary nation optimum. Finally, we show how the central government as a Stackelerg leader can adjust its fiscal instruments so that the tax externalities are also internalised.

Keywords: Cross-Border Shopping; Commodity Tax Competition; Fiscal Federalism (search for similar items in EconPapers)
JEL-codes: H21 H3 H77 R2 (search for similar items in EconPapers)
Pages: 20
Date: 2001-05-01, Revised 2002-05-28
New Economics Papers: this item is included in nep-com and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2002018

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