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An Empirical Test of the Dominant Tax Externality in Sweden
Oita University. (Faculty of Economics)
KTH, School of Architecture and the Built Environment (ABE), Centres, Centre for Banking and Finance, Cefin.
2014 (English)Report (Other academic)
Abstract [en]

We empirically reexamine the dominance of tax externalities in Sweden for the period of 2000through 2011. Where hierarchical governments share a mobile tax base, a tax externality canarise not only horizontally across the same level of government but also vertically betweendifferent levels of government. A horizontal externality shifts tax rates toward a level that istoo low, whereas a vertical externality pushes them toward a level that is too high. The netoutcome of these competing effects is theoretically unclear within benevolent federalgovernment systems. Brülhart and Jametti (2006) implemented a pioneering empirical test ofthe issue using Swiss data. Their empirical setting, however, assumes a single tax instrument,which contradicts the fiscal system in Switzerland. This inconsistency would theoreticallydistort their estimation. By contrast, our study investigates the pure dominance of taxexternality in a sample of Swedish jurisdictions that can tax only personal income. We find avertical externality to be relatively dominant.

Place, publisher, year, edition, pages
KTH Royal Institute of Technology, 2014. , 30 p.
, Working Paper Series, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin), 14/05
Keyword [en]
Interregional tax competition; Horizontal and vertical tax externalities; Benevolent governmental systems; Personal income taxes; Swedish tax system; Housing market.
National Category
Economics and Business
URN: urn:nbn:se:kth:diva-144614OAI: diva2:714377

QC 20140616

Available from: 2014-04-28 Created: 2014-04-28 Last updated: 2014-06-16Bibliographically approved

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Wilhelmsson, Mats
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