Besley, Timothy J. <br/><br/>
Vertical Externalities in Tax Setting:  Evidence from Gasoline and Cigarettes / 
Timothy J. Besley, Harvey S. Rosen. 
 - Cambridge, Mass.  National Bureau of Economic Research  1999. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w6517 .
 - Working Paper Series (National Bureau of Economic Research)  no. w6517. .
<br/><br/> March 1999. 
<br/><br/> 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. 
<br/><br/>
<br/><br/><br/>System requirements: Adobe [Acrobat] Reader required for PDF files. <br/>Mode of access: World Wide Web.