{"product_id":"optimal-taxation-in-a-federal-system-of-governments-von-sebastian-krug","title":"Optimal Taxation in a Federal System of Governments","description":"\u003cp\u003eSeminar paper from the year 2011 in the subject Economics - Finance, Christian-Albrechts-University of Kiel (Department of Economics), course: Seminar in Public Economics and Social Policy: Federalism and (De)Centralization, language: English, abstract: An implemented tax system causes distortions which leads to a minor overall welfare level compared to a system without taxes. This deviation in social welfare is often denoted by excess burden or dead weight loss (DWL) of taxation. So the traditional optimal taxation approach comprises the implementation of a tax system which minimizes the excess burden and hence the distortions caused by the levied taxes. Therefore, the policy maker has to anticipate possible behavioral adjustments of the market participants when choosing its optimal tax policy. Assuming the policy maker will do so all effects (i.e. distortions) caused by the tax system will be internalized which means that no fiscal externalities would arise from implementing the (optimal) tax system. However, the traditional optimal taxation approach abstracts from any intergovernmental relations as the existence of only one government and accordingly only one level with fiscal jurisdiction is assumed. The question here is whether and to what extent federal structures (i.e. multileveled government structures) affect the optimal tax policy decision.\u003c\/p\u003e\u003cp\u003eThe first attempt to take into account the characteristics of a federal system\u003c\/p\u003e\u003cp\u003erelated to optimal tax policy goes back to Gordon (1983) who applied the methodology\u003c\/p\u003e\u003cp\u003eof the traditional optimal taxation approach to fiscal federalism. Therein each\u003c\/p\u003e\u003cp\u003eunit of government (i.e. the federal and usually several state governments) decides\u003c\/p\u003e\u003cp\u003eindependently how much of public goods to provide and in particular which tax\u003c\/p\u003e\u003cp\u003epolicy to use in funding the provided public goods. Hence, we now consider a decentralized\u003c\/p\u003e\u003cp\u003eform of decision-making in which each unit of government chooses the\u003c\/p\u003e\u003cp\u003eoptimal tax policy in the best interest of its own residents. As a consequence of this\u003c\/p\u003e\u003cp\u003esolely intrajurisdictional externalities are internalized analogous to the traditional\u003c\/p\u003e\u003cp\u003eoptimization approach. Though, it isn¿t obvious whether this solution is also optimal\u003c\/p\u003e\u003cp\u003ein the sense of an inter jurisdictional point of view. Sobel (1997), Wrede (1999)\u003c\/p\u003e\u003cp\u003eand also Keen\/Kotsogiannis (2002) stated that a common pool problem emerges\u003c\/p\u003e\u003cp\u003egiven that subordinated governments (i.e. state governments) are allowed to levy\u003c\/p\u003e\u003cp\u003etaxes as well as the federal government. This means that taxation at multiple levels\u003c\/p\u003e\u003cp\u003elead to a shared tax base which is the fiscal analogue to the common property\u003c\/p\u003e\u003cp\u003eresource. Due to this overlap in tax bases any separately considered optimal tax\u003c\/p\u003e\u003cp\u003epolicy at a certain level may affect the optimality character of the ...\u003c\/p\u003e\u003cdiv class=\"aw-variant-hidden-subtitle-div\" id=\"aw-variant-subtitle-9783640816606\"\u003e\u003ch3\u003e\u003c\/h3\u003e\u003c\/div\u003e","brand":"Libri","offers":[{"title":"Softcover - 9783640816606","offer_id":39442752471133,"sku":"9783640816606","price":18.95,"currency_code":"EUR","in_stock":true}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/0940\/0622\/files\/eb87f2e5-1c7d-4591-b488-509d6afcc1e7.jpg?v=1777782072","url":"https:\/\/shop.autorenwelt.de\/products\/optimal-taxation-in-a-federal-system-of-governments-von-sebastian-krug","provider":"Autorenwelt Shop","version":"1.0","type":"link"}