Shared Tax Sources and Public Expenditures

Posted: 22 Jun 2001

See all articles by Matthias Wrede

Matthias Wrede

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

This paper deals with a specific vertical assignment of public functions in a federation: Two levels of government share both the same tax source and expenditure on a productivity increasing public service. We consider surplus maximizing Leviathan governments which provide public services in order to increase their potential tax base. The Nash equilibrium is characterized by overtaxation and relative to surplus maximization-depending onwhether or not the public goods are sufficiently complementary with the entire tax base-either underprovision or overprovision of the public service. The implications of these results, in terms of welfare and potential use for earmarking taxes are also considered.

Keywords: Fiscal federalism, Leviathan, tax base overlap, fiscal externalities, taxation, public expenditure

Suggested Citation

Wrede, Matthias, Shared Tax Sources and Public Expenditures. Available at SSRN: https://ssrn.com/abstract=261963

Matthias Wrede (Contact Author)

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics ( email )

Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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