Multi-stage taxation by subnational governments: welfare effects

Autores
Cont, Walter; Fernández Felices, Diego
Año de publicación
2017
Idioma
inglés
Tipo de recurso
documento de conferencia
Estado
versión publicada
Descripción
This paper analyzes multi-stage taxation by provinces in a federal country, using a two- good, two-province, two-stage successive differentiated-product symmetric oligopoly model, where each producer is located in a province and sells its product through exclusive retailers located in both provinces. Retailers compete for consumers a la Bertrand with differentiated products. The producer-retailer setup allows provincial governments to raise taxes on both upstream and downstream links of the value chain. We solve a simultaneous and non-cooperative tax competition problem, where (symmet- ric) provinces choose tax rates to maximize welfare subject to a revenue constraint. We find that provinces set tax rates to either raise revenue at only one segment of the value chain or use a combination of upstream and downstream taxation. This choice is determined by the revenue requirement, the size of the market and the degree of downstream competition. We characterize and discuss each possible case. Comparing the results of this model with the Leviathan case (analyzed in a previous paper by the authors) where governments behave as revenue maximizers, we find that there is a threshold on revenue requirement such that welfarist governments tend to behave qual- itatively similar to Leviathan governments when revenue need exceed the threshold: they both choose a combination of taxes if products have some degree of heterogeneity, whereas they rely on downstream taxation when products are homogeneous. This way we provide a rationale for raising taxes on successive taxation even when governments internalize the effect of successive taxation on welfare.
Facultad de Ciencias Económicas
Materia
Ciencias Económicas
Local indirect taxation
Multistage taxes
Tax competition
Welfare taxation
Nivel de accesibilidad
acceso abierto
Condiciones de uso
http://creativecommons.org/licenses/by-nc-sa/4.0/
Repositorio
SEDICI (UNLP)
Institución
Universidad Nacional de La Plata
OAI Identificador
oai:sedici.unlp.edu.ar:10915/123323

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spelling Multi-stage taxation by subnational governments: welfare effectsCont, WalterFernández Felices, DiegoCiencias EconómicasLocal indirect taxationMultistage taxesTax competitionWelfare taxationThis paper analyzes multi-stage taxation by provinces in a federal country, using a two- good, two-province, two-stage successive differentiated-product symmetric oligopoly model, where each producer is located in a province and sells its product through exclusive retailers located in both provinces. Retailers compete for consumers a la Bertrand with differentiated products. The producer-retailer setup allows provincial governments to raise taxes on both upstream and downstream links of the value chain. We solve a simultaneous and non-cooperative tax competition problem, where (symmet- ric) provinces choose tax rates to maximize welfare subject to a revenue constraint. We find that provinces set tax rates to either raise revenue at only one segment of the value chain or use a combination of upstream and downstream taxation. This choice is determined by the revenue requirement, the size of the market and the degree of downstream competition. We characterize and discuss each possible case. Comparing the results of this model with the Leviathan case (analyzed in a previous paper by the authors) where governments behave as revenue maximizers, we find that there is a threshold on revenue requirement such that welfarist governments tend to behave qual- itatively similar to Leviathan governments when revenue need exceed the threshold: they both choose a combination of taxes if products have some degree of heterogeneity, whereas they rely on downstream taxation when products are homogeneous. This way we provide a rationale for raising taxes on successive taxation even when governments internalize the effect of successive taxation on welfare.Facultad de Ciencias Económicas2017-12info:eu-repo/semantics/conferenceObjectinfo:eu-repo/semantics/publishedVersionObjeto de conferenciahttp://purl.org/coar/resource_type/c_5794info:ar-repo/semantics/documentoDeConferenciaapplication/pdfhttp://sedici.unlp.edu.ar/handle/10915/123323enginfo:eu-repo/semantics/altIdentifier/isbn/978-987-28590-5-3info:eu-repo/semantics/altIdentifier/url/https://aaep.org.ar/anales/works/works2017/cont_fernandez.pdfinfo:eu-repo/semantics/altIdentifier/issn/1852-0022info:eu-repo/semantics/openAccesshttp://creativecommons.org/licenses/by-nc-sa/4.0/Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International (CC BY-NC-SA 4.0)reponame:SEDICI (UNLP)instname:Universidad Nacional de La Platainstacron:UNLP2025-09-29T11:29:34Zoai:sedici.unlp.edu.ar:10915/123323Institucionalhttp://sedici.unlp.edu.ar/Universidad públicaNo correspondehttp://sedici.unlp.edu.ar/oai/snrdalira@sedici.unlp.edu.arArgentinaNo correspondeNo correspondeNo correspondeopendoar:13292025-09-29 11:29:34.795SEDICI (UNLP) - Universidad Nacional de La Platafalse
dc.title.none.fl_str_mv Multi-stage taxation by subnational governments: welfare effects
title Multi-stage taxation by subnational governments: welfare effects
spellingShingle Multi-stage taxation by subnational governments: welfare effects
Cont, Walter
Ciencias Económicas
Local indirect taxation
Multistage taxes
Tax competition
Welfare taxation
title_short Multi-stage taxation by subnational governments: welfare effects
title_full Multi-stage taxation by subnational governments: welfare effects
title_fullStr Multi-stage taxation by subnational governments: welfare effects
title_full_unstemmed Multi-stage taxation by subnational governments: welfare effects
title_sort Multi-stage taxation by subnational governments: welfare effects
dc.creator.none.fl_str_mv Cont, Walter
Fernández Felices, Diego
author Cont, Walter
author_facet Cont, Walter
Fernández Felices, Diego
author_role author
author2 Fernández Felices, Diego
author2_role author
dc.subject.none.fl_str_mv Ciencias Económicas
Local indirect taxation
Multistage taxes
Tax competition
Welfare taxation
topic Ciencias Económicas
Local indirect taxation
Multistage taxes
Tax competition
Welfare taxation
dc.description.none.fl_txt_mv This paper analyzes multi-stage taxation by provinces in a federal country, using a two- good, two-province, two-stage successive differentiated-product symmetric oligopoly model, where each producer is located in a province and sells its product through exclusive retailers located in both provinces. Retailers compete for consumers a la Bertrand with differentiated products. The producer-retailer setup allows provincial governments to raise taxes on both upstream and downstream links of the value chain. We solve a simultaneous and non-cooperative tax competition problem, where (symmet- ric) provinces choose tax rates to maximize welfare subject to a revenue constraint. We find that provinces set tax rates to either raise revenue at only one segment of the value chain or use a combination of upstream and downstream taxation. This choice is determined by the revenue requirement, the size of the market and the degree of downstream competition. We characterize and discuss each possible case. Comparing the results of this model with the Leviathan case (analyzed in a previous paper by the authors) where governments behave as revenue maximizers, we find that there is a threshold on revenue requirement such that welfarist governments tend to behave qual- itatively similar to Leviathan governments when revenue need exceed the threshold: they both choose a combination of taxes if products have some degree of heterogeneity, whereas they rely on downstream taxation when products are homogeneous. This way we provide a rationale for raising taxes on successive taxation even when governments internalize the effect of successive taxation on welfare.
Facultad de Ciencias Económicas
description This paper analyzes multi-stage taxation by provinces in a federal country, using a two- good, two-province, two-stage successive differentiated-product symmetric oligopoly model, where each producer is located in a province and sells its product through exclusive retailers located in both provinces. Retailers compete for consumers a la Bertrand with differentiated products. The producer-retailer setup allows provincial governments to raise taxes on both upstream and downstream links of the value chain. We solve a simultaneous and non-cooperative tax competition problem, where (symmet- ric) provinces choose tax rates to maximize welfare subject to a revenue constraint. We find that provinces set tax rates to either raise revenue at only one segment of the value chain or use a combination of upstream and downstream taxation. This choice is determined by the revenue requirement, the size of the market and the degree of downstream competition. We characterize and discuss each possible case. Comparing the results of this model with the Leviathan case (analyzed in a previous paper by the authors) where governments behave as revenue maximizers, we find that there is a threshold on revenue requirement such that welfarist governments tend to behave qual- itatively similar to Leviathan governments when revenue need exceed the threshold: they both choose a combination of taxes if products have some degree of heterogeneity, whereas they rely on downstream taxation when products are homogeneous. This way we provide a rationale for raising taxes on successive taxation even when governments internalize the effect of successive taxation on welfare.
publishDate 2017
dc.date.none.fl_str_mv 2017-12
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