Heterogeneous vertical tax externalities and macroeconomic effects of federal tax changes: The role of fiscal advantage
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http://hdl.handle.net/10045/93242
Title: | Heterogeneous vertical tax externalities and macroeconomic effects of federal tax changes: The role of fiscal advantage |
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Authors: | Pérez Sebastián, Fidel | Raveh, Ohad | Reingewertz, Yaniv |
Research Group/s: | Análisis Económico |
Center, Department or Service: | Universidad de Alicante. Departamento de Fundamentos del Análisis Económico |
Keywords: | Federalism | Natural resources | Fiscal advantage | Tax competition |
Knowledge Area: | Fundamentos del Análisis Económico |
Issue Date: | Jul-2019 |
Publisher: | Elsevier |
Citation: | Journal of Urban Economics. 2019, 112: 85-110. doi:10.1016/j.jue.2019.06.003 |
Abstract: | How do state tax rates respond to federal tax shocks? This paper presents a novel mechanism of heterogeneous vertical tax externalities across state-levels of fiscal advantage, showing that tax increases can be expansionary – even without their reinvestment. States rich in natural resources have a fiscal advantage in the inter-state competition over production factors which allows them to respond better to increases in federal taxes and, consequently, attract capital from other parts of the nation. We add heterogeneity in fiscal advantage levels to an otherwise standard model of vertical tax externalities and horizontal tax competition. The model shows that, irrespective of federal redistribution, the contractionary effect of a federal tax increase can be overturned in fiscally advantaged states, through an increase in their tax base. Using the case of the U.S., and narrative-based measures of federal tax shocks a-la Romer and Romer (2010), we provide empirical evidence for the various aspects of this mechanism. Specifically, our baseline estimates indicate that, controlling for federal transfers, a 1% increase in the GDP share of capital-related federal taxes at the beginning of a year increases the growth rate of the per capita tax base by approximately 0.7% in high fiscal advantage states at the end of it. |
Sponsor: | Fidel Perez-Sebastian thanks Ministerio de Economía y Competitividad and Fondo Europeo de Desarrollo Regional (ECO2015-70540-P MINECO/FEDER), and the Generalitat Valenciana ( PROMETEO/2013/037 ) for financial support. |
URI: | http://hdl.handle.net/10045/93242 |
ISSN: | 0094-1190 (Print) | 1095-9068 (Online) |
DOI: | 10.1016/j.jue.2019.06.003 |
Language: | eng |
Type: | info:eu-repo/semantics/article |
Rights: | © 2019 Elsevier Inc. |
Peer Review: | si |
Publisher version: | https://doi.org/10.1016/j.jue.2019.06.003 |
Appears in Collections: | INV - Análisis Económico - Artículos de Revistas |
Files in This Item:
File | Description | Size | Format | |
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2019_Perez-Sebastian_etal_JUrbanEcon_final.pdf | Versión final (acceso restringido) | 1,89 MB | Adobe PDF | Open Request a copy |
2019_Perez-Sebastian_etal_JUrbanEcon_accepted.pdf | Accepted Manuscript (acceso abierto) | 1,84 MB | Adobe PDF | Open Preview |
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