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Ad Valorem Taxes and the Fiscal Gap in Federations

Author

Listed:
  • Christos Kotsogiannis

    (Department of Economics, University of Exeter)

  • Diego Martinez

    (Department of Economics, University Pablo Olavide)

Abstract

This paper investigates the implications of vertical fiscal externalities for the optimal federal tax and the sign of fiscal gap in the presence of ad valorem taxation. It is shown that the federal government can always achieve the second-best optimum for public good provision. The sign of the fiscal gap is, in general, ambiguous. The consequence of this is that a precise evaluation of the fiscal gap requires an explicit consideration of the underlying fundamentals of the federal economy.

Suggested Citation

  • Christos Kotsogiannis & Diego Martinez, 2007. "Ad Valorem Taxes and the Fiscal Gap in Federations," Discussion Papers 0703, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:0703
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    File URL: https://exetereconomics.github.io/RePEc/dpapers/DP0703.pdf
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    References listed on IDEAS

    as
    1. Michael Keen & Christos Kotsogiannis, 2003. "Leviathan and Capital Tax Competition in Federations," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 177-199, April.
    2. Dahlby, Bev & Wilson, Leonard S., 2003. "Vertical fiscal externalities in a federation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 917-930, May.
    3. Kotsogiannis, Christos & Makris, Miltiadis, 2002. "On production efficiency in federal systems," Economics Letters, Elsevier, vol. 76(2), pages 281-287, July.
    4. Robin Boadway & Michael Keen, 1996. "Efficiency and the optimal direction of federal-state transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(2), pages 137-155, May.
    5. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Willem Sas, 2017. "Can fiscal equalisation mitigate tax competition? Ad valorem and residence-based taxation in a federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 817-853, September.
    2. Diego Martínez, 2008. "Optimal Federal Taxes with Public Inputs," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(4), pages 422-433, December.
    3. Diego Martínez-López, 2018. "Vertical Externalities Revisited: New Results with Public Inputs and Unit Taxation," Hacienda Pública Española / Review of Public Economics, IEF, vol. 225(2), pages 11-30, June.
    4. Willem Sas, 2015. "Commuting in a federation: Horizontal and vertical tax externalities revisited," ERSA conference papers ersa15p690, European Regional Science Association.
    5. Diego Martinez-Lopez & Tomas Sjöngren, 2014. "Vertical externalities with lump-sum taxes: how much difference does unemployment make?," European Journal of Government and Economics, Europa Grande, vol. 3(1), pages 75-87, June.
    6. Karakosta, Ourania, 2010. "Ad-valorem taxation and the balance of externalities in federations," Economics Letters, Elsevier, vol. 107(1), pages 71-73, April.
    7. Kato, Hideya & Yanagihara, Mitsuyoshi, 2023. "Vertical fiscal externality in public education inputs: When federal and state governments have different time perspectives," Research in Economics, Elsevier, vol. 77(4), pages 518-525.
    8. Diego Martinez-Lopez & Tomas Sjöngren, 2014. "Vertical externalities with lump-sum taxes: how much difference does unemployment make?," European Journal of Government and Economics, Europa Grande, vol. 3(1), pages 75-87, June.
    9. Mutsumi Matsumoto & Hikaru Ogawa, 2022. "Tax Competition and Efficient Fiscal Transfers under Capital and Labor Income Taxes," CIRJE F-Series CIRJE-F-1196, CIRJE, Faculty of Economics, University of Tokyo.

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    More about this item

    Keywords

    Ad valorem taxes; fiscal gap; externalities; fiscal federalism;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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