Energy Tax Reform with Vertical Tax Externalities
28 Pages Posted: 27 Sep 2005
Date Written: July 2005
Abstract
The paper is a general equilibrium analysis of an energy tax reform in a federation. It gives us a tool to measure the welfare effects and the vertical tax externalities of the tax reform. Vertical tax externalities may arise when two government levels impose taxes on common tax bases. We show how the magnitude and sign of the vertical externality depend on the environmental goal, the tax-recycling scenario, the initial local and federal tax shares, and the size of the federation. Simulations illustrate the effects for a small European federation (e.g. Belgium) and a large federation (e.g. US).
Keywords: Tax Reform, Vertical tax Externality, Federalism
JEL Classification: H23, H77
Suggested Citation: Suggested Citation
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