Abstract

http://ssrn.com/abstract=161310
 
 

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Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes


Timothy J. Besley


London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Harvey S. Rosen


Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

March 1999

NBER Working Paper No. w6517

Abstract:     
A common feature of federal systems is that tax bases are joint property. Consequently, state and federal tax setting decisions are interdependent. Our aim here is to put forward a rudimentary theoretical analysis of this phenomenon, and to use the theory as a framework for econometrically estimating the magnitude of the responses. We find that when the federal government increases taxes, there is a significant positive response of state taxes. For example, a 10-cent per gallon increase in the federal tax rate on gasoline leads to a 3.2-cent increase in the state tax rate.

Number of Pages in PDF File: 24

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Date posted: May 19, 1999  

Suggested Citation

Besley, Timothy J. and Rosen, Harvey S., Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes (March 1999). NBER Working Paper No. w6517. Available at SSRN: http://ssrn.com/abstract=161310

Contact Information

Timothy J. Besley (Contact Author)
London School of Economics & Political Science (LSE) - Department of Economics ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 6702 (Phone)
+44 20 7955 6951 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Harvey S. Rosen
Princeton University - Department of Economics ( email )
001 Fisher Hall
Princeton, NJ 08544
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
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