Horizontal and Vertical Tax Externalities in a Multicountry World

Arbeitspapier

Recent contributions on tax competition recognize the interaction between both horizontal and vertical tax externalities in a single federation. In this paper, we extend the theoretical analysis to a framework with multiple federations (a Union). We show that the relative size of a federation in the Union determines not only the extent but also the direction of the tax ine¢ ciency. The equilibrium state tax is lower in relative small countries but surprisingly, vertical externalities are more likely to dominate there, i.e. for a relative small federation, the non-cooperative local tax rate is lower than for a relative large federation but still higher than the one observed in absence of tax competition. This result seems to contradict recent theoretical findings where a lower equilibrium state tax is followed by a dominant horizontal externality.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bonn Econ Discussion Papers ; No. 8/2007

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Efficiency; Optimal Taxation
• Subject: Tax Competition ; Horizontal Externalities ; Vertical Externalities ; Fragmentation ; Fiscal Federalism ; Steuerwettbewerb ; Finanzföderalismus ; Externer Effekt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Crivelli, Ernesto ; Volpe Martincus, Christian
• Event: Veröffentlichung
• (who): University of Bonn, Bonn Graduate School of Economics (BGSE)
• (where): Bonn
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/22983
• Last update: 10.03.2025, 11:44 AM CET