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Leviathans, Federal Transfers, and the Cartelization Hypothesis

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  • Marko Köthenbürger

Abstract

Federal fiscal arrangements are argued to give rise to tacit collusion among competing Leviathans (Brennan and Buchanan, The Power to Tax, CUP, 1980). Though frequently encountered in academic and policy discussions, the cartelization hypothesis has rarely been scrutinized formally. This paper explores the effect of federal equalizing transfers on Leviathans engaged in tax competition. Contrary to the hypothesis, equalization is found to potentially complement tax competition in taming the Leviathan by implicitly taxing tax revenues extracted by the Leviathan. Thus, transfers might be an appropriate constitutional provision against fiscal expropriation. JEL classification: H7, H1, H20

Suggested Citation

  • Marko Köthenbürger, 2004. "Leviathans, Federal Transfers, and the Cartelization Hypothesis," CESifo Working Paper Series 1180, CESifo.
    • Handle: RePEc:ces:ceswps:_1180
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    References listed on IDEAS

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    1. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
    2. Sam Bucovetsky & Michael Smart, 2006. "The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(1), pages 119-144, January.
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    Cited by:

    1. Nobuo Akai & Hikaru Ogawa & Yoshitomo Ogawa, 2011. "Endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(5), pages 495-506, October.
    2. Carl Gaigné & Stéphane Riou, 2007. "Globalization, Asymmetric Tax Competition, and Fiscal Equalization," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(5), pages 901-925, October.
    3. Sharma, Chanchal Kumar, 2007. "Rescuing the concept of vertical fiscal imbalance," MPRA Paper 39343, University Library of Munich, Germany, revised 2010.

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    More about this item

    Keywords

    Leviathan; fiscal transfers; fiscal competition; federalism; constitution;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H1 - Public Economics - - Structure and Scope of Government
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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