Vertical income tax externalities and fiscal interdependence: Evidence from the US Model

Alejandro Esteller-Moré () and Albert Solé-Ollé ()
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Alejandro Esteller-Moré: Institut d'Economia de Barcelona (IEB); Universitat de Barcelona (UB)
Albert Solé-Ollé: Institut d'Economia de Barcelona (IEB); Universitat de Barcelona (UB)

No 2000/1, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: Concurrent taxation is a feature of many federal systems. As a result, the tax policy of one level of government affects the tax base of the other. A way to check the empirical relevance of this hypothesis is to test for the existence of interdependencies in the tax setting behaviour of various layers of government. Following this approach, this paper estimates the reaction of U.S. state personal income and general sales taxes to federal tax rates, taking into account the special features of the U.S. tax system. We find that when the federal government increases taxes, there is a significant positive response of state taxes.

Keywords: Fiscal federalism; Tax deductibility; Vertical tax externalities (search for similar items in EconPapers)
JEL-codes: H21 H3 H77 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:ieb:wpaper:doc2000-1

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