Tax policy coordination, vertical externalities, and optimal taxation in a system of hierarchical governments

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42 Scopus citations

Abstract

Tax policies of two levels of government (state and federal) with overlapping tax bases are considered. This overlap leads to "vertical" fiscal externalities are considered when several different commodities are in the tax base and the tax bases of the two levels of government may not be identical. When the governments share a tax base, the mix of combined taxes is optimal. With different tax bases, combined taxes are no longer optimal as federal tax rates are adjusted to reflect state public service levels. When grants are available, a welfare-maximizing mix of taxes and public services is obtained.

Original languageEnglish
Pages (from-to)491-516
Number of pages26
JournalJournal of Urban Economics
Volume50
Issue number3
DOIs
StatePublished - 2001

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies

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