Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes / Timothy J. Besley, Harvey S. Rosen.

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Besley, Timothy J

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w6517.Publication details: Cambridge, Mass. National Bureau of Economic Research 1999.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: A common feature of federal systems is that tax bases are joint property. Consequently, state and federal tax setting decisions are interdependent. Our aim here is to put forward a rudimentary theoretical analysis of this phenomenon, and to use the theory as a framework for econometrically estimating the magnitude of the responses. We find that when the federal government increases taxes, there is a significant positive response of state taxes. For example, a 10-cent per gallon increase in the federal tax rate on gasoline leads to a 3.2-cent increase in the state tax rate.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w6517 (Browse shelf(Opens below))	Not For Loan

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March 1999.

A common feature of federal systems is that tax bases are joint property. Consequently, state and federal tax setting decisions are interdependent. Our aim here is to put forward a rudimentary theoretical analysis of this phenomenon, and to use the theory as a framework for econometrically estimating the magnitude of the responses. We find that when the federal government increases taxes, there is a significant positive response of state taxes. For example, a 10-cent per gallon increase in the federal tax rate on gasoline leads to a 3.2-cent increase in the state tax rate.