Please use this identifier to cite or link to this item:
Appears in Collections:Economics Journal Articles
Peer Review Status: Refereed
Title: Can fiscal equalisation mitigate tax competition? Ad valorem and residence-based taxation in a federation
Author(s): Sas, Willem
Contact Email:
Keywords: Tax competition
Ad valorem taxation
Vertical and horizontal externalities
Fiscal equalisation
Residence-based taxation
Fiscal federalism
Issue Date: Sep-2017
Citation: Sas W (2017) Can fiscal equalisation mitigate tax competition? Ad valorem and residence-based taxation in a federation, International Tax and Public Finance, 24 (5), pp. 817-853.
Abstract: In this paper, we revisit the combined effect of horizontal and vertical tax externalities in a federal context, extending the theoretical framework of Keen and Kotsogiannis (Am Econ Rev 92(1):363–370, 2002) by allowing for ad valorem and residence-based taxation. When taxes are levied ad valorem rather than per-unit firstly, we find the interaction between both types of externalities is more ambiguous than commonly understood. As a result, and contrary to earlier findings, fiscal equalisation mechanisms such as the representative transfer system (RTS) fail to fully internalise the tax externalities. Given these limitations, we derive the conditions under which a standard RTS will either: (1) at least nudge politicians in the right direction; (2) realise no welfare gains at all; (3) considerably overshoot the second-best efficiency mark causing welfare loss. Lastly, we find that when taxation is residence-based rather than source-based, a different kind of competition emerges where tax cuts are aimed at stimulating outward factor flows, rather than attracting inward flows.
DOI Link:
Rights: The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.

Files in This Item:
File Description SizeFormat 
Sas 2017.pdf765.59 kBAdobe PDFUnder Permanent Embargo    Request a copy

Note: If any of the files in this item are currently embargoed, you can request a copy directly from the author by clicking the padlock icon above. However, this facility is dependent on the depositor still being contactable at their original email address.

This item is protected by original copyright

Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.

If you believe that any material held in STORRE infringes copyright, please contact providing details and we will remove the Work from public display in STORRE and investigate your claim.