Heterogeneous vertical tax externalities and macroeconomic effects of federal tax changes: The role of fiscal advantage

《Heterogeneous vertical tax externalities and macroeconomic effects of federal tax changes: The role of fiscal advantage》

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作者单位: Fundamentos del Análisis Económico (FAE), University of Alicante, Spain;Hull University Business School, UK;Department of Environmental Economics and Management, Hebrew University of Jerusalem, Israel;The Center for Agricultural Economic Research, Israel;School of Economics, Finance and Property, Curtin University, Australia;Division of Public Administration and Policy, School of Political Sciences, University of Haifa, Israel;Fundamentos del Análisis Económico (FAE), University of Alicante, Spain;Hull University Business School, UK;Department of Environmental Economics and Management, Hebrew University of Jerusalem, Israel;The Center for Agricultural Economic Research, Israel;School of Economics, Finance and Property, Curtin University, Australia;Division of Public Administration and Policy, School of Political Sciences, University of Haifa, Israel

摘要: How do state tax rates respond to federal tax shocks? This paper presents a novel mechanism of heterogeneous vertical tax externalities across state-levels of fiscal advantage, showing that tax increases can be expansionary – even without their reinvestment. States rich in natural resources have a fiscal advantage in the inter-state competition over production factors which allows them to respond better to increases in federal taxes and, consequently, attract capital from other parts of the nation. We add heterogeneity in fiscal advantage levels to an otherwise standard model of vertical tax externalities and horizontal tax competition. The model shows that, irrespective of federal redistribution, the contractionary effect of a federal tax increase can be overturned in fiscally advantaged states, through an increase in their tax base. Using the case of the U.S., and narrative-based measures of federal tax shocks a-la Romer and Romer (2010), we provide empirical evidence for the various aspects of this mechanism. Specifically, our baseline estimates indicate that, controlling for federal transfers, a 1% increase in the GDP share of capital-related federal taxes at the beginning of a year increases the growth rate of the per capita tax base by approximately 0.7% in high fiscal advantage states at the end of it.