A spatial analysis of provincial corporate income tax responses: evidence from Canada

Karkalakos, Sotiris; Kotsogiannis, Christos

doi:10.1111/j.1365-2966.2007.00431.x

Cited by 24 publications

(22 citation statements)

References 47 publications

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“…That is, when other provinces raise their tax rates, the tax base shifts from the higher-tax jurisdiction to a lower-tax jurisdiction (see for example Hayashi and Boadway 2001;Esteller-Morè and Solè-Ollè 2002;Mintz and Smart 2004;Karkalakos and Kotsogiannis 2007;Devereux et al 2007;Dahlby and Ferede 2012). Thus changes in other provinces' tax rate can motivate provinces to change their own tax rates.…”

Section: Empirical Methodologymentioning

confidence: 94%

Determinants of statutory tax rate changes by the Canadian provinces

2014

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Tax rate changes are some of the most significant and far-reaching decisions a government can take. In this paper we investigate the various fiscal and political factors that influence a government's statutory tax rate change choices. We employ a multinomial logit model to empirically investigate the likelihood of changes to personal income tax, corporate income tax, and provincial sales tax rates by Canadian provincial governments over the period 1973-2010. Our results indicate that provincial governments that start with higher tax rates are more likely to cut, and less likely to raise, their tax rates. Another important implication of our results is that ideology matters-provinces with left-leaning governments are less likely to cut and more likely to raise their tax rates. The results are robust to various sensitivity checks.

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Section: Empirical Methodologymentioning

confidence: 94%

Determinants of statutory tax rate changes by the Canadian provinces

2014

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“…Esteller-Moré and Solé-Ollé (2002) find that provinces which receive equalization grants set higher personal income tax rates if the contribution rate to the equalization system is increased. Karkalakos and Kotsogiannis (2005) show that an increase in the volume of federal grants received induces provinces to reduce their corporate income tax rates.…”

Section: Discussionmentioning

confidence: 99%

Efficient Revenue Sharing and Upper Level Governments: Theory and Application to Germany

2006

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Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp06013.pdf Non-Technical SummaryMany countries display a substantial degree of taxing autonomy for local jurisdictions while at the same time being characterized by some redistributive grant systems which tend to internalize fiscal externalities arising from tax competition. While the existence of redistributive grant systems may explain why local governments in those countries make use of distortive taxes despite of tax competition, it is difficult to derive policy recommendations.The reason is that the welfare implications from tax competition and tax coordination strongly depend on the government objectives.Given this background the current paper explores the conditions under which redistributive grant systems will or will not achieve or raise efficiency in local finances. We consider a standard model of tax competition of local jurisdictions and introduce a system of redistributive grants executed at the state level. The basic model is then extended in order to allow for variations in the government objectives at the state level. The theoretical results suggest that attempts of upper level governments to extract fiscal resources from the local revenue sharing system will tend to undermine efficiency of local finances, and, possibly, even result in excessive equalization.The implications from our theoretical analysis are finally contrasted with the experience in Germany. Germany is a particularly interesting case to study in this respect as it combines municipal tax autonomy and substantial revenue sharing among municipalities supervised and enforced by the states (Länder). At the same time, some of the German states are in an increasingly difficult fiscal situation where the debt burden is rather high such that they may be tempted to induce local jurisdictions to increase taxing effort.Moreover, also the German system of fiscal federalism provides several incentives and disincentives for government policies at the state level which allows us to investigate whether, in fact, the response of state governments to changes in the policy constraints, say a reduction in the grants received at the level of states, includes an adjustment of the revenue sharing system among municipalities.Our empirical analysis of tax policy in Germany suggests that attempts of state governments to extract fiscal resources from the municipal revenue sharing system exert an upward pressure on tax rates. This raises doubts whether the state government shoul...

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“…In the theoretical model of tax competition developed by Keen and Kotsogiannis (2002) and modified by Karkalakos and Kotsogiannis (2007), the federal government overlaps sub-national governments and, by assumption, the policymakers involved are considered benevolent 4 in the sense that they act in the best interest of their own individual jurisdictions. It is also considered an equalisation system.…”

Section: Theoretical Analysis Of Fiscal Interdependence Among Levels mentioning

confidence: 99%

“…However, both studies do not take into account the existence of horizontal tax competition among subnational levels of government. Subsequently, the works proposed by Hayashi andBoadway (2001), Esteller-Moré andSolé-Ollé (2001), Brulhart and Jametti (2006), Devereux et al (2007), Karkalakos and Kotsogiannis (2007) and Fredriksson and Mamun (2008) introduced tax interaction among subnational levels of government (horizontal tax competition) in this type of analysis. Based on research carried out by Devereux et al (2007) and Fredriksson and Mamun (2008), Politi and Mattos (2012) analyse the vertical and horizontal externalities in cigarette and gasoline taxation in Brazil, using a database covering the 26 Brazilian states (the capital Distrito Federal was excluded from the analysis) between the years 1995 and 2007.…”

Section: Introductionmentioning

confidence: 98%

“…The analysis of the theoretical model developed byKarkalakos and Kotsogiannis (2007) considers that the federal government behaves as a Stackelberg leader with respect to the states of the federation in adjusting its rates. Thus, the states increase their rates in response to an arbitrary increase by the federal government and ignore the contraction of the common tax base resulting from this fiscal adjustment.…”

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confidence: 99%

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Vertical tax competition in Brazil: Empirical evidence for ICMS and IPI in the period 1995–2009

2015

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The main objective of this study is to quantify the impact caused by changes in federal tax on the tax policy of the Brazilian states, considering the presence of horizontal tax competition between states. Using panel data covering 26 Brazilian states plus the Federal District during the period 1995-2009, two models were estimated representing the average reaction of the states in response to changes in federal tax rates. In the first model, both levels of government act simultaneously, whereas in the second model, reaction is sequential, with the federal government acting as the leader in defining its effective tax rates. The results indicate a positive and significant response of states to increases in the federal tax rate, resulting in an over-taxation of the common tax base and higher tax rates. Additional tests show that the first model is the most suitable to represent the problem analysed. ResumoObjetivo principal desse trabalho é quantificar qual o impacto provocado por mudanças no imposto federal sobre a política tributária dos estados, considerando a presença de competição tributária horizontal entre os estados. Utilizando um painel de dados que abrange os 26 estados brasileiros mais o Distrito Federal no período 1995-2009, foram estimados dois modelos que representam a reação média dos estados em resposta a mudanças nas alíquotas do governo federal. No primeiro modelo ambos os níveis de governo agem simultaneamente, enquanto que no segundo a reação é sequencial com o governo federal atuando como líder na definição de suas alíquotas efetivas. Os resultados apontam para uma resposta positiva e significante dos estados à aumentos na alíquota tributária federal resultando em uma sobretaxação da base tributária comum e alíquotas elevadas. Testes adicionais mostram que o primeiro modelo é o mais indicado para representar o problema analisado.

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A spatial analysis of provincial corporate income tax responses: evidence from Canada

Cited by 24 publications

References 47 publications

Determinants of statutory tax rate changes by the Canadian provinces

Determinants of statutory tax rate changes by the Canadian provinces

Efficient Revenue Sharing and Upper Level Governments: Theory and Application to Germany

Vertical tax competition in Brazil: Empirical evidence for ICMS and IPI in the period 1995–2009

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