A Decentralization Theorem of Taxation

SAFE Working Paper No. 105

19 Pages Posted: 20 May 2015

See all articles by Vilen Lipatov

Vilen Lipatov

Compass Lexecon Brussels

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2015

Abstract

In the EU there are longstanding and ongoing pressures towards a tax that is levied on the EU level to substitute for national contributions. We discuss conditions under which such a transition can make sense, starting from what we call a "decentralization theorem of taxation" that is analogous to Oates (1972) famous result that in the absence of spill-over effects and economies of scale decentralized public good provision weakly dominates central provision. We then drop assumptions that turn out to be unnecessary for this results. While spill-over effects of taxation may call for central rules for taxation, as long as spill-over effects do not depend on the intra-regional distribution of the tax burden, decentralized taxation plus tax coordination is found superior to a union-wide tax.

Keywords: fiscal federalism, taxing rights, decentralization theorem

JEL Classification: H21, H77

Suggested Citation

Lipatov, Vilen and Weichenrieder, Alfons J., A Decentralization Theorem of Taxation (May 2015). SAFE Working Paper No. 105. Available at SSRN: https://ssrn.com/abstract=2607967 or http://dx.doi.org/10.2139/ssrn.2607967

Vilen Lipatov

Compass Lexecon Brussels ( email )

23 Square de Meeus
Bruxelles, 1000
Belgium

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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