Optimal taxation and intergovernmental transfer in a dynamic model with multiple levels of government

Liutang Gong and Heng-Fu Zou ()

No 54, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: In this paper, we study the optimal choices of the federal income tax, federal transfers, and local taxes in a dynamic model of capital accumulation and with explicit gamestructure s among multipleprivateage nts, multiplelocal governments, and the federal government. In general, the optimal local property tax is zero if the local property tax is constrained to be nonnegative, whereas the optimal local consumption tax is always positive. When the local consumption tax is chosen optimally, the federal income tax can be either positive or negative. For most reasonable parameter values, our numerical calculations have shown that with a positive local consumption tax there exists a reverse transfer from local governments to the federal government.

Keywords: Income tax; Property tax; Consumption tax; Intergovernmental transfers; Capital accumulation; Fiscal federalism (search for similar items in EconPapers)
JEL-codes: E0 H2 H4 H5 H7 O4 R5 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (1)

Published in Journal of Economic Dynamics and Control, Volume 26, Issue 12, October 2002, Pages 1975-2003

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Journal Article: Optimal taxation and intergovernmental transfer in a dynamic model with multiple levels of government (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:wpaper:54

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