Mind the Gap: Schooling, Informality and Fiscal Externalities in Nepal

Abstract Currently, sales taxes are imposed at both the state and local levels in 37 US states. In these environments, vertical tax competition occurs as governments share a common sales tax base, and local jurisdictions have autonomy over sales tax rates. As cash-strapped states look to sales taxes for additional revenues, local governments may worry about potentially adverse revenue impacts, as consumers react to combined tax rate increases. This study examines state-municipal and county-municipal fiscal spillovers using an empirical approach that accounts for endogenous tax policy leadership and voter tax fatigue. Employing comprehensive longitudinal data from Oklahoma, we find that state tax hikes significantly crowd out future rate increases for the large group of jurisdictions that are designated as followers. Leader jurisdictions are not found to display crowd-out tendencies, a result that is consistent with recent work suggesting that leaders may be less influenced by vertical fiscal externalities than other jurisdictions.

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A Remedy for Fiscal Externalities in a Monetary Union

Jahrbuch für Handlungs- und Entscheidungstheorie ◽

10.1007/978-3-322-97555-3_5 ◽

2003 ◽

pp. 91-111

Author(s):

Michael Neugart ◽

Björn Rother

Keyword(s):

Monetary Union ◽

Fiscal Externalities

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Testing for Vertical Fiscal Externalities

International Tax and Public Finance ◽

10.1023/b:itax.0000021970.40929.9a ◽

2004 ◽

Vol 11 (3) ◽

pp. 243-263 ◽

Cited By ~ 21

Author(s):

Linda Andersson ◽

Thomas Aronsson ◽

Magnus Wikström

Keyword(s):

Fiscal Externalities

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Vertical Fiscal Externalities and Federal Tax-Transfers under Variable Factor Supplies

CESifo Economic Studies ◽

10.1093/cesifo/ifz011 ◽

2019 ◽

Author(s):

Nikos Tsakiris ◽

Panos Hatzipanayotou ◽

Michael S Michael

Keyword(s):

Federal Government ◽

State Governments ◽

International Mobility ◽

Jel Codes ◽

Fiscal Externalities ◽

Public Consumption ◽

Variable Factor ◽

Capital Tax ◽

Labor Taxes ◽

Endogenous Labor

Abstract Within a model of variable supply of capital due to international mobility and variable labor supply due to endogenous labor-leisure choice, we revisit the issues of vertical fiscal externalities, and of federal tax-transfers. Capital and labor taxes by federal and state governments finance the provision of federal and of state public consumption goods. When capital and labor are substitutes in production, we show that (i) the state’s optimal policy calls for capital and labor taxes, (ii) the vertical fiscal externality can be reversed from negative, implying inefficiently high noncooperative capital taxes, to positive, implying inefficiently low noncooperative capital taxes, and (iii) under centralized leadership the federal government replicates the second best optimum with a capital tax, and possibly, top-down transfers. (JEL codes: F18, F21, H21).

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