Template-Type: ReDIF-Paper 1.0
Title: Horizontal and Vertical Tax Externalities in a Multicountry World
Author-Name: Ernesto Crivelli
Author-Name: Christian Volpe Martincus
Author-Email:  ecrivell@uni-bonn.de
Classification-JEL: H21, H7, H3
Keywords: Tax Competition, Horizontal Externalities, Vertical Externalities, Fragmentation, Fiscal Federalism
Abstract: Recent contributions on tax competition 
	recognize the interaction between both horizontal and 
	vertical tax externalities in a single federation. In this 
	paper, we extend the theoretical analysis to a framework 
	with multiple federations (a Union). We show that the 
	relative size of a federation in the Union determines not 
	only the extent but also the direction of the tax ine¢ 
	ciency. The equilibrium state tax is lower in relative 
	small countries but surprisingly, vertical externalities 
	are more likely to dominate there, i.e. for a relative 
	small federation, the non-cooperative local tax rate is 
	lower than for a relative large federation but still 
	higher than the one observed in absence of tax 
	competition. This result seems to contradict recent 
	theoretical findings where a lower equilibrium state 
	tax is followed by a dominant horizontal externality.
Note: 
Length: 24
Creation-Date: 2007-05
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse8_2007.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse8_2007