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Welfare Effects of National Taxes in an Economy with Regions

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  • Jeffrey D. Petchey
  • Sofia Levtchenkova

Abstract

The present paper illustrates that changes in national commodity and income tax rates will affect the location choices of mobile factors of production within an economy with regions as well as the total supply of these factors to the economy. It is also argued that revenue (expenditure) neutral changes in the tax mix, for example, an increase in the commodity tax combined with a decrease in the income tax rate, will affect the domestic distribution of mobile factors, their supply to the economy and social welfare. In other words, revenue neutrality should not be used as a guide to the welfare effects of tax mix changes.

Suggested Citation

  • Jeffrey D. Petchey & Sofia Levtchenkova, 2003. "Welfare Effects of National Taxes in an Economy with Regions," The Economic Record, The Economic Society of Australia, vol. 79(245), pages 218-228, June.
    • Handle: RePEc:bla:ecorec:v:79:y:2003:i:245:p:218-228:b
    DOI: 10.1111/1475-4932.t01-1-00099
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    References listed on IDEAS

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    3. Michael Keen, 1998. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 454-485, September.
    4. Bev Dahlby & Jack Mintz & Sam Wilson, 2000. "The deductibility of provincial business taxes in a federation with vertical fiscal externalities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(3), pages 677-694, August.
    5. Boadway, Robin & Pestieau, Pierre & Wildasin, David, 1989. "Tax-transfer policies and the voluntary provision of public goods," Journal of Public Economics, Elsevier, vol. 39(2), pages 157-176, July.
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    Cited by:

    1. Isaac Otoo & Michael Danquah, 2021. "Fiscal decentralization and efficiency of public services delivery by local governments in Ghana," African Development Review, African Development Bank, vol. 33(3), pages 411-425, September.
    2. Ian Sue Wing, 2000. "Limiting CO2 Emissions in a Federal System: Understanding and Mitigating the Cost of U.S. Climate Policy At the State Level," Regional and Urban Modeling 283600093, EcoMod.

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