Welfare effects of regional income taxes (original) (raw)
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Economic Effects of Regional Tax Incentives: A General Equilibrium Approach
Latin American Business Review, 2007
Resumo: Governos regionais recorrentemente utilizam políticas de incentivos fiscais para influenciar as decisões privadas de alocação de investimentos visando atraí-los para dentro de suas jurisdições. Esse comportamento não é diferente no Brasil e parece ter sido catalisado nos últimos anos por uma conjugação de fatores. O objetivo deste artigo é demonstrar que a abordagem de equilíbrio geral computável pode ser uma solução metodológica apropriada para analisar os efeitos econômicos de políticas de incentivo fiscal para atração de novos investimentos. A proposta consiste em utilizar um modelo inter-regional de equilíbrio geral computável desenvolvido para duas regiões do Brasil, Rio Grande do Sul e Restante do Brasil, e simular os efeitos econômicos de um aumento no estoque de capital corrente da indústria de transformação do Rio Grande do Sul fomentado por renúncia tributária do governo regional e gastos públicos em investimento.
1999
In a theoretical model local jurisdictions provide a public input and a public consumption good financed by a tax on capital income. When deciding about tax rate and budget structure the jurisdictions will generally respond to each other's fiscal choices irrespective of whether their policy is oriented more towards raising local income or raising public consumption. These policy differences along with differences in size are then shown to give rise to local differences in tax rates. The theoretical implications for the distribution of tax rates are then confronted with the case of local business taxation (Gewerbesteuer) in West Germany. Taking into account local interdependence in tax rate decisions, tax rates are found to be positively related to the population size of the communities even when controlling for density. This conforms with the hypothesis that large jurisdictions experience some market power in the capital market. In addition, federally mandated local welfare expe...
Fiscal Federalism and Tax Administration -- Evidence From Germany
SSRN Electronic Journal, 2013
In many federations, fiscal equalization schemes soften fiscal imbalances across the member states. Such schemes usually imply that the member states internalize only a small fraction of the additional tax revenue from an expansion of the state-specific tax bases, while the remainder of the additional tax revenue is redistributed horizontally or vertically. We address the question as to which extent state-level jurisdictions in such a federation underexploit their tax bases. By means of a stylized model we show that the state authorities in such a federation have incentives to align the effective tax rates of their residents to the internalized fraction of marginal tax revenue. We empirically test the model using three setups: one state level exercise and two micro level exercises using administrative income-tax data in form of an OLS regression and a natural-experiments design. All setups support the results from our theoretical model.
Tax Decentralization Notwithstanding Regional Disparities
Social Science Research Network, 2019
In assessing the desirability for tax decentralization reforms, a dilemma between efficiency and redistribution emerges. By limiting the ability of the central government to redistribute resources towards regions in financial needs, decentralization curbs incentives for excessive subnational spending and enhances fiscal discipline, but may also widen interregional disparities by triggering tax competition for mobile tax bases. We provide a formal treatment of this trade-off, and shed light on the optimal degree of fiscal decentralization. We find that tax decentralization can be optimal even under Rawlsian social preferences which only weight the welfare of the poorest region in the federation. JEL-Codes: H770.
Fiscal Incidence at the Regional Level
This paper measures net fiscal incidence at the regional level using a numerical general equilibrium framework with explicit demands for public goods, a median voter rule of public goods provision, and interregional tax exporting. The analysis is conducted for one state (Georgia) and the "Rest of the United States" (ROUS). We find that increasingly comprehensive measures of net fiscal incidence do not change the incidence results appreciably. The distribution of net benefits across income groups at the regional level is regressive, and public good provision is efficiently low. We also find that exclusively from a regional perspective, state- local taxes are welfare improving in that the income effects from tax exporting dominate those of distortionary taxation. However, from the perspective of the entire country, tax exporting by all regions results in welfare losses to all regions from the distortionary effects of taxation.
Optimal Formulas for Subnational Tax Revenue Sharing
We develop an analysis of optimal formulas for subnational tax revenue sharing for two cases of interest: when local public goods (lpg's) show spillovers and are interregional perfect and imperfect substitutes. Our analysis could be relevant to understand the determinants of feasible competing alternatives for the design of tax revenue sharing systems. Our study shows that: 1) Inter regional spillovers should be taken into account in the design of formulas for subnational revenue sharing when lpg's are perfect interregional substitutes but should not be taken into account to supply lpg's that are imperfect substitutes; 2) The distribution of preferences for lpg's and population should be considered in formulas for revenue sharing when subnational governments provide both lpg's that are perfect and imperfect substitutes; 3) For local public goods that are imperfect substitutes, the share of tax revenue is first increasing and then decreasing with increases in the population of the district; 4) For perfect substitute-lpg's, the share of tax revenue in the district is increasing and concave with the district's population; 5) The distribution of income should not be considered in the design of formulas for lpg's that are perfect and imperfect substitutes. Other empirically relevant comparative analyses are considered in the paper.
A theory of interregional tax competition*1
Journal of Urban Economics, 1986
A general equilibrium model is constructed to study tax competition, where local governments compete for capital by holding down property tax rates and public expenditure levels. An exact definition of tax competition is provided, and both the existence and nonexistence of tax competition are shown to be theoretically possible. It is argued, however, that tax competition must occur under empirically reasonable conditions. Inefficiency in public production is also explicitly modeled. The amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms.
Regional Tax Competition: Evidence from French Regions
Regional Studies, 2009
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Tax Exporting, Regional Economic Growth, and Welfare
Journal of Urban Economics, 1996
Long-run exporting and importing of regional taxes is assessed theoretically and empirically using a six-region nonlinear general equilibrium model of the United States. The relationships between tax exporting and three aggregate measures of Ž regional change value added, welfare of all residents, and welfare of original. residents only are examined empirically. The ability of states to adopt tax structures that successfully impose more of a burden on out-of-state residents does not necessarily promote regional economic growth or welfare, and evaluating tax policy based on its ability to promote economic growth may be misleading if regional welfare is the primary objective.