Faculty of Economics and Business Administration Publications Database

A Decentralization Theorem of Taxation

Authors:
Source:
Volume: 62
Number: 2
Pages: 289 - 300
Month: June
Link External Source: Online Version
Year: 2016
Keywords: Fiscal federalism; Taxing rights; Decentralisation theorem
Abstract:

In the European Union (EU), there are longstanding and ongoing pressures toward a tax that is levied on the EU level to substitute for national contributions. We discuss conditions under which such a transition can make sense, starting from what we call a ‘decentralization theorem of taxation’ that is analogous to Oates’ (1972) famous result that in the absence of spillover effects and economies of scale, decentralized public good provision weakly dominates central provision. We then drop assumptions that turn out to be unnecessary for this result. While spillover effects of taxation may call for central rules for taxation, as long as spillover effects do not depend on the intra-regional distribution of the tax burden, decentralized taxation plus tax coordination is found superior to a union-wide tax.

back