Tax competition and tax base equalization in the presence of multiple tax instruments

The literature on tax competition has argued that tax base equalization, which reduces regional disparities in tax bases, can serve as a means of internalizing horizontal and vertical fiscal externalities. This argument assumes that each government relies on a single tax base (a regional tax on mobile capital and a federal tax on savings). This paper considers the case in which a distortionary labor tax is also available. Internalizing fiscal externalities requires that while the regional capital tax base is fully equalized, a region’s equalization entitlement for the labor tax is positive when its tax base is “larger” than the average tax base of all regions. This efficient tax base equalization system is incompatible with the primary objective of fiscal equalization.

The Fiscal Externalities of Charter Schools: Evidence from North Carolina

A significant criticism of the charter school movement is that funding for charter schools diverts money away from traditional public schools. The magnitude of such adverse fiscal externalities depends in part on the nature of state and local funding policies. In this paper, we examine the fiscal effects of charter schools on both urban and nonurban school districts in North Carolina. We base our analysis on detailed balance sheet information for a sample of school districts that experienced substantial charter growth since the statewide cap on charters was raised in 2011. We find a large and negative fiscal impact in excess of $500 per traditional public school pupil in our one urban school district, which translates into an average fiscal cost of about $3,600 for each student enrolled in charter schools. We estimate comparable to somewhat larger fiscal externalities per charter school pupil for two nonurban districts.

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

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).

Regional Tax Externality and Competition: Empirical Study in Early Decentralization Era of East Java Province

<p>This paper concerned with the empirical study about tax competition among regions which in a theoretical point of view, tax competition is seen as an economic policy strategy to attract mobile tax bases and firms in order to boost economic development in terms of employment and output growth within the political jurisdiction implementing it. Using a panel of more 400 observed district and municipal inEast Java. It provides empirical evidence on how the local tax as well as the retribution in the neighborhood affect the local tax. The results support the existence of fiscal externalities: an increase in the tax and retribution of local neighbors exerts a positive effect on the local tax which is shown by spatial weighting variable both tax and retribution. Several factors that are hypothesized affect local tax also significant to determine local tax, these factors such as original regional income, and regional domestic product as a proxy of income.</p><p> </p>

Do State Sales Taxes Crowd Out Local Option Sales Taxes?

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.