Abstract
The paper deals with vertical tax competition between self-interested governments in a dynamic environment. In a federation, competition between the federal and the state governments arises when tax sources are not separated but pooled. Since dynamic inefficiencies will be stressed, the focus is on fiscal stock externalities rather than on flow externalities. The paper shows that the Leviathans in a federation tax the fiscal common resource more extensively than the single Leviathan in a unitary state. Furthermore, the positive impact of political stability on public consumption of the fiscal common will be discussed.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Brennan, G. and Buchanan, J.M. (1980). The power to tax. Cambridge: Cambridge University Press.
Dahlby, B. (1996). Distortionary taxation and the design of intergovernmental grants. International Tax and Public Finance 3: 397–412.
Dutta, P.K. and Sundaram, R.K. (1993). The tragedy of the commons? Economic Theory 3: 413–426.
Edwards, J. and Keen, M. (1996). Tax competition and Leviathan. European Economic Review 40: 113–134.
Flowers, M.R. (1988). Shared tax sources in a Leviathan model of federalism. Public Finance Quarterly 16: 67–77.
Fudenberg, D. and Tirole, J. (1991). Game theory. Cambridge, MA: MIT Press.
Gradus, R.H.J.M. (1989). A differential game between government and firms: A noncooperative approach. Journal of Economics 50: 237–256.
Haniotis, T. (1995). Electoral control and decentralization. Mimeo. IIPF 51st Congress, Lisbon.
Keen, M. (1995). Pursuing Leviathan: Fiscal federalism and international tax competition. Mimeo. IIPF 51st Congress, Lisbon.
Levhari, D. and Mirman, L.J. (1980). The great fish war: An example using a dynamic Cournot-Nash solution. Bell Journal of Economics 11: 322–334.
Seabright, P. (1996). Accountability and decentralization in government: An incomplete contracts model. European Economic Review 40: 61–89.
Wrede, M. (1996). Vertical and horizontal tax competition: Will unco-ordinated Leviathans end up on the wrong side of the Laffer curve? Finanzarchiv N.F. 53: 461–479.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Wrede, M. Tragedy of the Fiscal Common?: Fiscal Stock Externalities in a Leviathan Model of Federalism. Public Choice 101, 177–193 (1999). https://doi.org/10.1023/A:1018322225197
Issue Date:
DOI: https://doi.org/10.1023/A:1018322225197