SFB 303 Discussion Paper No. A - 441

Author: Nett, Lorenz
Title: Tax Authority to the European Parliament?
Abstract: In this paper we analyze whether countries of the EC community should plead for a decentralized system to finance the European funds rather than using a uniform tax imposed by the European parliament. The analysis is within a multistage game-theoretic framework in which the implication of the financing system of a confederation on the investment behavior in the respective states is considered. The paper is in the tradition of the literature which claims that from a view of global efficiency property - rights structures inducing ex-post efficient allocations may be worse than a system leading to an ex-post inefficient allocation. For this specific economic issue we elucidate the tradeoff between incentive effects and distributional policy. Especially we demonstrate that rather homogeneous countries benefit by installing a central tax institution.
Keywords: fiscal federalism, efficient taxation, provision of public goods
JEL-Classification-Number: F02, H21, H41
Creation-Date: May 1994
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