TY  - JOUR
AU  - Besley, Timothy J
AU  - Rosen, Harvey S
TI  - Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6517
PY  - 1999
Y2  - March 1999
DO  - 10.3386/w6517
UR  - http://www.nber.org/papers/w6517
L1  - http://www.nber.org/papers/w6517.pdf
N1  - Author contact info:
Timothy J. Besley
Department of Economics
London School of Economics
Houghton Street
London  WC2A 2AE  ENGLAND
E-Mail: T.Besley@lse.ac.uk

Harvey S. Rosen
Department of Economics
Simpson Building
Princeton University
Princeton, NJ 08544
Tel: 609/258-4022
Fax: 609/258-6419
E-Mail: HSR@princeton.edu
AB  - 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 3.2-cent increase in the state tax rate.
ER  -