Ad Valorem Taxes and the Fiscal Gap in Federations

Christos Kotsogiannis and Diego Martínez

No 703, Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper investigates the implications of vertical fiscal externalities for the optimal federal tax and the sign of fiscal gap in the presence of ad valorem taxation. It is shown that the federal government can always achieve the second-best optimum for public good provision. The sign of the fiscal gap is, in general, ambiguous. The consequence of this is that a precise evaluation of the fiscal gap requires an explicit consideration of the underlying fundamentals of the federal economy.

Keywords: Ad valorem taxes; fiscal gap; externalities; fiscal federalism (search for similar items in EconPapers)
JEL-codes: H41 H71 H77 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (4)

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Journal Article: Ad valorem taxes and the fiscal gap in federations (2008)
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