What Drives Vertical Fiscal Interactions? Evidence from the 1980 Crude Oil Windfall Act
Fidel Perez-Sebastian and
Ohad Raveh ()
Authors registered in the RePEc Author Service: Fidel Perez Sebastian ()
No 183, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford
In economies with multi-level governments, why would a change in the Â…scal rule of a gov-ernment in one level lead to a Â…scal response by a government in a diÂ¤erent level? Previous explanations focus on the standard common-pool problem. In this paper we study a new potential channel: complementarities between the public goods supplied by the two governments. First, we illustrate its potential key role in determining the sign of the vertical reaction through a standard model of horizontal tax competition with vertical Â…scal interactions. Second, we propose a novel strategy for identifying it, by considering an empirical design that conÂ…nes the common-pool channel to speciÂ…c locations. We implement this design through a quasi-natural experiment: the 1980 U.S. Crude Oil Windfall Act, which increased federal tax collections from sale of crude oil, thereby aÂ¤ecting the tax base of oil rich states speciÂ…cally. This latter feature enables attributing the vertical Â…scal reactions of the remaining states to the complementarity channel. Following this strategy, via a diÂ¤erence-in-diÂ¤erences approach, we decompose the sources of the vertical Â…scal reactions arising from this federal tax change and Â…nd that those attributed to the novel channel: (i) point at complementarity between state and federal public goods; (ii) account for approximately 40% of the overall vertical Â…scal response; (iii) are manifested primarily via corporate taxation.
Keywords: Federalism; vertical fiscal reactions; common-pool problem; complimentarities; natural resources (search for similar items in EconPapers)
JEL-codes: H77 H71 Q32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Journal Article: What drives vertical fiscal interactions? Evidence from the 1980 Crude Oil Windfall Act (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:183
Access Statistics for this paper
More papers in OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Melis Boya ().