Heterogeneous Vertical Tax Externalities, Capital Mobility, and the Fiscal Advantage of Natural Resources

Pérez-Sebastián, Fidel; Raveh, Ohad; Reingewertz, Yaniv

doi:10.2139/ssrn.2640258

Cited by 4 publications

(6 citation statements)

References 60 publications

(48 reference statements)

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“…2 8 The model suggests, via its additional analysis in the Appendix, that changes in resource income may a¤ect ti. This result was discussed in previous studies that examined tax competition settings with state-heterogeneity in non-mobile endowments (Cai and Treisman (2005), Perez-Sebastian and Raveh (2016), Perez-Sebastian, Raveh, and Reingewertz (2016), and Raveh (2013)), and substantiated empirically by James (2014).…”

Section: Methodssupporting

confidence: 59%

“…Since two of the taxes studied a¤ect factors of production, we need to introduce into the framework a production side that employs capital and natural resources as inputs. Here, the proposed structure is reminiscent of the one constructed in Perez-Sebastian, Raveh, and Reingewertz (2016) yet focuses on a di¤erent federal tax and includes the response of the …rm's demand for capital to taxation. Individuals and the natural-resource input are immobile.…”

Section: A Additional Theoretical Resultsmentioning

confidence: 99%

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What drives vertical fiscal interactions? Evidence from the 1980 Crude Oil Windfall Act

Pérez-Sebastián

Raveh

2018

Regional Science and Urban Economics

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In economies with multi-level governments, why would a change in the …scal rule of a government in one level lead to a …scal response by a government in a di¤erent level? The literature focused primarily on the standard common-pool problem, while giving little attention to the potential role of complementarity or substitutability (CS) between the public goods supplied by the two governments. This paper …lls this gap by focusing on the latter channel. First, we illustrate its potential key role in determining the sign of the vertical reaction through a generic model of vertical …scal interactions. Second, we propose a novel strategy for identifying it, by considering an empirical design that con…nes the common-pool channel to speci…c locations. We implement this design through a quasi-natural experiment: the 1980 U.S. Crude Oil Windfall Act, which increased federal tax collections from sale of crude oil, thereby a¤ecting the tax base of oil rich states speci…cally. This latter feature enables attributing the vertical …scal reactions of the remaining states to the CS channel. Following this strategy, via a di¤erence-in-di¤erences approach, we decompose the sources of the vertical …scal reactions arising from this federal tax change and …nd that those attributed to the CS channel: (i) account for approximately 38% of the overall vertical …scal response; (ii) point at complementarity between state and federal public goods, most notably in transportation and welfare expenditures; (iii) are manifested primarily via changes in states'sales and income taxation.

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Section: Methodssupporting

confidence: 59%

Section: A Additional Theoretical Resultsmentioning

confidence: 99%

What drives vertical fiscal interactions? Evidence from the 1980 Crude Oil Windfall Act

Pérez-Sebastián

Raveh

2018

Regional Science and Urban Economics

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“…As a …rst step, we seek to test the model's main underlying conjecture, namely that federal tax shocks a¤ect resource rich and poor districts di¤erentially, such that tax increases (decreases) are more (less) bene…cial for the former. Importantly, state-level evidence for the heterogeneous impact of federal taxation across resource abundance levels are provided in a concurrent study by Perez-Sebastian, Raveh, and Reingewertz (2016). 25 The latter …nd that federal tax changes have a weaker impact on the …rms, capital stock, and growth of resource abundant states.…”

Section: Methodsmentioning

confidence: 99%

“…We exploit these features in the empirical analysis. Last, the focus on RR's sample yields a clearer link to the existing related literature, in which several studies similarly focused on this set of federal tax changes, including Mertens and Ravn (2012), Mertens and Ravn (2013), Perez-Sebastian, Raveh, and Reingewertz (2016), and Reingewertz (2018).…”

Section: Federal Tax Changes and Voting Datamentioning

confidence: 97%

“…These include Bracco, Lockwood, Porcelli, and Redoano (2015), Nannicini (2012), Brollo, Nannicini, Perotti, andTabellini (2013), Dahlberg and Johansson (2002), Dixit and Londregan (1998), Persson and Tabellini (1996a), and Persson and Tabellini (1996b). In addition, a related emerging strand of literature highlights the heterogeneous impacts of federal …scal policies, including Albouy (2009), Chodorow-Reich, Feiveson, Liscow, andWoolston (2012), Clemens and Miran (2012), Hayo and Uhl (2015), Nakamura and Steinsson (2014), Perez-Sebastian, Raveh, and Reingewertz (2016), and Suarez Serrato and Wingender (2014. This paper studies political economy aspects of …scal federalism related to regional heterogeneity that hitherto has been overlooked, namely di¤erences in natural resource abundance.…”

Section: Related Literaturementioning

confidence: 99%

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Federal Tax Policies, Congressional Voting, and the Fiscal Advantage of Natural Resources

Pérez-Sebastián

Raveh

2017

SSRN Journal

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Can abundance of natural resources a¤ect legislators'voting behavior over federal tax policies? We construct a political economy model of a federalized economy with district heterogeneity in natural resource abundance. The model shows that representatives of natural resource rich districts are more (less) willing to vote in favor of federal tax increases (decreases). This occurs because resource rich districts are less responsive to federal tax changes due to the immobile nature of their natural resources. We test the model's predictions using data on roll-call votes in the U.S. House of Representatives over the major federal tax bills initiated during the period of 1945-2003, in conjunction with the presence of active giant oil …elds in U.S. Congressional districts. Our identi…cation strategy rests on plausibly exogenous giant oil …eld discoveries and exploitation, and narrative-based aggregate federal tax shocks that are exogenous to individual Congressional districts and legislators. We …nd that: i) resource rich Congressional districts are less responsive to changes in federal taxes; ii) representatives of resource rich Congressional districts are more (less) supportive of federal tax increases (decreases), controlling for legislator, Congressional district, and state indicators. Our results indicate that resource richness is approximately half as dominant as the main determinant, namely party a¢ liation, in driving legislators'voting behavior over federal tax policies.

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Corporate taxes and vertical tax externalities: Evidence from narrative federal tax shocks

Reingewertz

2018

Regional Science and Urban Economics

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Heterogeneous Vertical Tax Externalities, Capital Mobility, and the Fiscal Advantage of Natural Resources

Cited by 4 publications

References 60 publications

What drives vertical fiscal interactions? Evidence from the 1980 Crude Oil Windfall Act

What drives vertical fiscal interactions? Evidence from the 1980 Crude Oil Windfall Act

Federal Tax Policies, Congressional Voting, and the Fiscal Advantage of Natural Resources

Corporate taxes and vertical tax externalities: Evidence from narrative federal tax shocks

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