Fiscal Equalization, Tax Salience, and Tax Competition
No 3/2014, IWH Discussion Papers from Halle Institute for Economic Research (IWH)
Jurisdictions that engage in inter-regional tax competition usually try to attenuate competitive pressures by substituting salient tax instruments with hidden ones. On this effect, we investigate the efficiency consequences of inter-regional tax competition and fiscal equalization in a federal system when taxpayers fail to optimally react on shrouded attributes of local tax policy. If the statuary tax rate is a relatively salient instrument and taxpayers pay low attention to the quality and the frequency of tax enforcement, the underlying substitution of tax instruments with the aim of reducing the perceived tax price may suppress the under-exploitation of tax bases that is typically triggered by fiscal equalization.
Keywords: fiscal equalization; tax salience; tax competition; fiscal federalism; tax-cutcum-base-broadening policy (search for similar items in EconPapers)
JEL-codes: H22 H30 H77 (search for similar items in EconPapers)
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Working Paper: Fiscal Equalization, Tax Salience, and Tax Competition (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:iwh-3-14
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