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Vertical externalities in tax setting: evidence from gasoline and cigarettes

Besley, Timothy and Rosen, HS (1997) Vertical externalities in tax setting: evidence from gasoline and cigarettes. IFS working papers (W97/23). Institute for Fiscal Studies (Great Britain), London, UK.

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Identification Number: 10.1920/wp.ifs.1997.9723


A common feature of federal systems is that tax bases are joint property. Consequently, state and federal tax setting decisions are interdependent. Our aim here is to put forward a rudimentary theoretical analysis of this phenomenon, and to use the theory as a framework for econometrically estimating the magnitude of the responses. We find that when the federal government increases taxes, there is a significant positive response of state taxes. For example, a 10-cent per gallon increase in the federal tax rate on gasoline leads to a 3.5-cent increase in the state tax rate.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 1998 The Authors
Divisions: LSE
Subjects: H Social Sciences > HJ Public Finance
Date Deposited: 27 Apr 2007
Last Modified: 15 Sep 2023 22:44

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