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A partire dal 2016 gli investimenti comunali sono in continua crescita e si prospetta nei prossimi anni una grande quantità di progetti infrastrutturali, finanziati dal PNRR, che le amministrazioni comunali dovranno gestire. Tuttavia, non tutti i Comuni partono dalla stessa dotazione di infrastrutture sul loro territorio, quindi per un adeguato riparto delle risorse occorre stimare il capitale fisso attualmente a disposizione degli enti locali. Utilizzando il metodo dell'inventario permanente e le spese per investimento dei comuni lombardi nel periodo 2000-2019, si è quindi ricostruito lo stock di capitale pubblico a livello comunale per la Lombardia. Attraverso un modello di regressione semplice, mostriamo come lo stock di infrastrutture sia fortemente determinato dalla popolazione e da alcune caratteristiche socio-economiche e territoriali dei comuni, quali il reddito pro capite, l'altitudine, i chilometri di strade comunali e la presenza di aree ad alta pericolosità idraulica o di frane. Infine, stimiamo lo stock di infrastrutture standard e mettiamo in evidenza come i comuni di piccolissime dimensioni (< 1.000 abitanti) e di grandi dimensioni (>20.000 abitanti) presentino un deficit di infrastrutture rispetto allo standard.

The spread of COVID-19 led countries around the world to adopt lockdown measures of varying stringency, with the purpose of restricting the movement of people. However, the effectiveness of these measures on mobility has been markedly different. Employing a difference-in-differences design, we analyse the effectiveness of movement restrictions across different countries. We disentangle the role of regulation (stringency measures) from the role of people's knowledge about the spread of COVID-19. We proxy COVID-19 knowledge by using Google Trends data on the term "Covid". We find that lockdown measures have a higher impact on mobility the more people learn about COVID-19. This finding is driven by countries with low levels of trust in institutions and low levels of education.

Recycling and the recovery of waste are crucial waste management strategies. In light of the new European Union (EU) circular economy approach, these strategies remain core pillars of a competitive and sustainable waste value chain. Local governments have an important role in controlling and checking the implementation of waste management policies. We study the spatial determinants of waste recovery using a dataset of 102 Italian provinces from 2001 to 2014. To induce a possible source of exogenous variation, we exploit the political cycle of the provinces to isolate the impact of waste recovery in neighbouring provinces on its own province’s waste recovery. We find that after the transposition of the 2008 EU Waste Framework Directive, provinces mimic their own neighbours in the separate collection of waste aimed at recycling and recovery. This effect is more pronounced during pre-electoral years than non-pre-electoral ones, and fully guided by provinces where the president can run for re-election.

We present new cross-country empirical evidence that tax system complexity affects the location of international investment. The evidence comes from a database of foreign direct investment (FDI) bi...

Due to the pro-independence demands of part of its electorate, the political fit of Catalonia within Spain has given rise to notable political tensions over the last few years. This conflict has progressively affected several dimensions of Catalan society, including, potentially, the economy. The illegal referendum on independence, held in October 2017, marked the climax of political and social tensions, leading to a Constitutional crisis and further stoking the conflict as opposed to offering any hope of an early resolution. We analyze a complete set of margins potentially affected by the referendum, including real (aggregate demand and supply) and financial responses. Using a synthetic control method, we find strong evidence of the outflow of short-term bank deposits after the referendum; while, on the real side, we find evidence of responses in aggregate supply (number of capital increases and number of new firms registered).

Are the incentives to expand expenditure before local elections affected by the composition of local governments’ revenues? We explore this issue by exploiting the Italian government bill that in 2008 replaced the municipal tax on main residence with a vertical transfer. Relying on staggered dates of municipal elections to identify the effect of the reform, we find evidence of a political budget cycle, but only for municipalities that in 2008 were in their pre-electoral year. The result suggests that a lower degree of municipal tax autonomy strengthens the incentives to expand the size of the budget before the elections.

Recycling and the recovery of waste are crucial waste management strategies. In light of the new EU circular economy approach, these strategies remain core pillars of a competitive and sustainable waste value chain. Local governments have an important role in controlling and checking the implementation of waste management policies. We study the spatial determinants of waste recovery by using a dataset of 102 Italian provinces from the years 2001-2014. We exploit the political cycle of the provinces to isolate the effects of waste recovery in one province on neighboring provinces. We find that provinces mimic their own neighbors’ in the separate collection of waste aimed at recycling and recovery, with this effect being fully guided by provinces where the president can run for re-election (consistent with the yardstick competition hypothesis) but only when waste management policies become politically salient, that is, after the transposition of the 2008 EU Waste Framework Directive.

To control the reproduction rate, R, and therefore to fight against the Covid-19 pandemic, countries have announced several measures We rely on a quasi-natural experimental approach and provide graphical evidence of the effectiveness of the widespread use of swabs testing in reducing the Covid infection rate among Italian provinces © 2021 The Author(s) Published by Informa UK Limited, trading as Taylor & Francis Group

We show that the introduction of the procurement centralization within the regional healthcare systems in Italy reduced per capita health expenditure approximatelyt by 2–8%, without affecting the level of health-related public services. Our results also indicate that the effect is persistent after six years, and is not influenced by the coexistence of other organizational models, such as amalgamation and hybrid systems. Finally, we document that the reduction in public expenditure is effective only in areas characterized by poor quality of institutions, indicating that procurement centralization might be an effective tool to reduce corruption-related inefficiencies in the health sector.

This paper explores the role of decentralization in explaining variation in fuel subsidies across countries. Using panel data over the period 1998-2008 and for 108 countries, it emerges that the effect of ‘decentralization’ (taken to be an increase in the number of government levels) broadly decreases both diesel and gasoline subsidies, with this effect being more pronounced when the level of political accountability is low. For developing countries, for which political accountability is low, decentralization decreases gasoline and diesel subsidies by at least 6.98% and 12.99%, respectively. For developed countries, for which political accountability is high, decentralization does not have any impact on both gasoline and diesel. What this evidence points to is that in developing economies, where voters are poorly informed and accountability is low, decentralization appears to be associated with lower fuel subsidies.

We set up a model in which the residents of two neighboring municipalities use the services provided by public infrastructures located in both jurisdictions. The outcome is that municipalities strategically interact when investing in infrastructures, with the small municipality reacting more to the expenditure of its neighbor than the big one. This theoretical prediction is tested by estimating the determinants of the stock of public infrastructures of the municipalities belonging to the Autonomous Province of Trento in Italy. By introducing the classical spatial lag-error component, we find that municipalities positively react to an increase in infrastructures by their neighbors, but the effect vanishes above a given population threshold. Such a result is confirmed when we exploit the exogenous variation in the neighbors’ stock of infrastructures induced by a strong flood that occurred in the Province of Trento in 2000.

Since COVID-19 was declared a pandemic, countries on the same pandemic trajectory have adopted very different lockdown strategies. Using data for over 132 countries, and employing an event-study design, this paper identifies the role of political, economic and institutional factors in explaining the differential timing and intensity of stringency measures undertaken., Highlights • We explain why countries have responded differentially in adopting lockdown measures. • We employ an event-study approach on 132 countries over the period January to April 2020. • We identify political/institutional/economic factors to explain the lockdown measures. • A key result is that fiscally decentralised economies have been slow to react.

In questo contributo si discute come il saldo utile per individuare l’obiettivo del patto di stabilita interno, calcolato utilizzando la contabilita euro-compatibile, possa portare ad una ripartizione dell’indebitamento consolidato della PA molto diversa da quella che si avrebbe utilizzando la contabilita di competenza mista, attualmente usata per calcolare l’obiettivo del patto di stabilita interno per i comuni. La contabilita euro-compatibile classifica infatti alcune voci rilevanti del conto corrente per cassa, che invece nella contabilita di competenza mista sono classificate per competenza ed inoltre elimina dal conto capitale le voci relative alle partite finanziarie. Si utilizzano i dati dei consuntivi 2009-2011 aggregati per i comuni italiani applicando la contabilita euro-compatibile e quella di competenza mista. Quindi si approfondisce il ruolo delle partite finanziarie e degli aggiustamenti contabili, necessari a raccordare le due contabilita, analizzando la loro distribuzione distinta per zona geografica e per regione: il contributo all’indebitamento varia, sia a livello di comparto comunale, che tra un comune e l’altro a seconda della contabilita utilizzata.

Until less than two decades ago, all known human coronaviruses (CoV) caused diseases so mild that they did not stimulate further advanced CoV research. In 2002 and following years, the scenario changed dramatically with the advent of the new more pathogenic CoVs, including Severe Acute Respiratory Syndome (SARS-CoV-1), Middle Eastern respiratory syndrome (MERS)-CoV, and the new zoonotic SARS-CoV-2, likely originated from bat species and responsible for the present coronavirus disease (COVID-19), which to date has caused 15,581,007 confirmed cases and 635,173 deaths in 208 countries, including Italy. SARS-CoV-2 transmission is mainly airborne via droplets generated by symptomatic patients, and possibly asymptomatic individuals during incubation of the disease, although for the latter, there are no certain data yet. However, research on asymptomatic viral infection is currently ongoing worldwide to elucidate the real prevalence and mortality of the disease. From a clinical point of view, COVID-19 would be defined as “COVID Planet “ because it presents as a multifaceted disease, due to the large number of organs and tissues infected by the virus. Overall, based on the available published data, 80.9% of patients infected by SARS-CoV-2 develop a mild disease/infection, 13.8% severe pneumonia, 4.7% respiratory failure, septic shock, or multi-organ failure, and 3% of these cases are fatal, but mortality parameter is highly variable in different countries. Clinically, SARS-CoV-2 causes severe primary interstitial viral pneumonia and a “cytokine storm syndrome”, characterized by a severe and fatal uncontrolled systemic inflammatory response triggered by the activation of interleukin 6 (IL-6) with development of endothelitis and generalized thrombosis that can lead to organ failure and death. Risk factors include advanced age and comorbidities including hypertension, diabetes, and cardiovascular disease. Virus entry occurs via binding the angiotensin-converting enzyme 2 (ACE2) receptor present in almost all tissues and organs through the Spike (S) protein. Currently, SARS-CoV-2 infection is prevented by the use of masks, social distancing, and improved hand hygiene measures. This review summarizes the current knowledge on the main biological and clinical features of the SARS-CoV-2 pandemic, also focusing on the principal measures taken in some Italian regions to face the emergency and on the most important treatments used to manage the COVID-19 pandemic.

Summary: Taxes in the host country matter a lot for FDI inflows, but only for non-OECD countries. Taking advantage of the rich dataset constructed by Djankov et al. (2010), we show, for example, that raising the first-year effective corporate income tax rate by 10 pp reduces FDI inflows by 3.4 to 1.9 pp in non-OECD countries; and the effect is null for OECD countries. Not taking this heterogeneity into account upward (downward) biases the estimated impact of the corporate tax on FDI inflows for OECD (non-OECD) countries.

Inter-municipal cooperation is a common way to provide local public services, exploit economies of scale and internalize externalities. However, little is known about possible efficiency gains. We test their existence in terms of local public expenditures reductions, by investigating the Italian experience of municipal unions. We adopt quasi-experimental methodologies using administrative data on municipalities in the Emilia Romagna region. We find that being in a municipal union reduces the total per capita current expenditures by around 5 percent, without affecting the level of local public services. The effect is robust, persistent and increasing up to six years after entrance.

In passing the 1974 Budget Act, Congress fundamentally reshaped the federal budgeting and appropriations process for generations to come, but along with this change came several related, unintended consequences that continue to have an impact today. The Act asserted Congressional power and independence from the Executive after a history marked with piecemeal decision-making and overriding Presidential power. Part I of this study suggested that the 1974 Budget Act decreased federal spending the years immediately following the passage – after which federal spending increased, but by less than it would have otherwise. In this paper, we consider another potential outcome: Whether the new power structure made federal grantmaking more partisan. In other words, was the Executive branch incentivized to use these grants to curry favor and encourage passage of Presidential budget priorities? We find evidence that having both Senators or the Governor in the same political party as the President has increased grants given to states after the 1974 Budget Act.

The 1974 Budget Act marked a turning point in U.S. budgeting history. With the Act, Congress decisively asserted its fiscal power, becoming more independent from the President in developing the budget and appropriating funds. Lawmakers at the time believed that the status quo, wherein Congress approved the budget in a piecemeal fashion, improperly limited their authority. While rising deficits and debts put pressure on Washington to restrain them, the President’s most direct method for cutting spending – impoundment – caused the conflict between Congress and the President that boiled over and led to the Budget Act. In this paper, we set out to discover how this compromise, the 1974 Congressional Budget and Impoundment Control Act (or 1974 Budget Act), ultimately impacted spending and debt. More specifically we use a synthetic control model to test the alternative – what would have happened without the Act? In short, we find that after 1974, public debt-to-GDP and public expenditures-to-GDP both increased, but less than what they would have without it. Section 2 outlines the Institutional framework, Section 3 describes the empirical methodology, Section 4 discusses the data sample and the empirical strategy Section 5 describes the results, Section 6 discusses broad implications for modern reformers, and the Appendix shows the placebo tests which give robustness to synthetic control analysis.

This paper investigated the fiscal interactions between Italian municipalities over the period 2001–11 and found a positive horizontal interdependence in spending decisions. The results are robust to different specifications of the spatial neighbours and are confirmed by a natural experiment (an earthquake in the Abruzzo region of Italy in 2009) that creates an exogenous variation in the neighbours’ spending. Furthermore, there is no evidence of yardstick competition when one considers political effects, while a negative relationship is found between spatial interaction and the size of the municipality. Thus, it can be concluded that spillover effects drive the strategic interactions in spending decisions.

Inter-regional redistribution through tax-base equalization transfers is examined in a setting in which taxpayers, organized as lobby groups, influence policy making. With lobbying only at the local level on tax rates, social welfare maximization implies, ceteris paribus, high (low) equalization rates on the tax bases backed by the strong (weak) lobby groups. With lobbying also at the central level, equalization is distorted downward on all tax bases if the pressure groups are similar in terms of lobbying power. It is instead distorted downward (upward) on the bases backed by strong (weak) groups if they are highly heterogeneous. In the latter situation, a uniform equalization structure may perform better than a differentiated one.

Italy has recently approved a law (n. 42/2009) implying a strong federal reform of the State. The law regulates the allocation of fiscal power to regions and municipalities and introduces the criteria of standard expenditure and standard cost which should be adopted in the allocation of the federal transfers. The paper contains a simulation of the new financial system regarding either primary expenditures (health, social assistance and school), or secondary expenditures. More in detail the simulation shows that primary expenditure, about 116 billion euros, can be financed through 84.95% of the value added tax and a 3.81% regional tax rate on income. As far as it concerns secondary expenditure (6.7 billion euros) results show that the South of Italy will receive less money with respect to the status-quo provision, whatever the chosen equalization level.

We investigate the existence of spatial interaction in spending decisions among Italian municipalities. We estimate a spatial autoregressive dynamic panel data model, using information on 5,564 Italian municipalities over the period 2001-2011, exploiting their border contiguity as a measure of spatial neighborhood. We find a positive effect of neighboring expenditures on total, capital and current expenditures of a given municipality. We do not find any evidence of yardstick competition when we take account of political effects, while we find a negative relationship between spatial interaction and the size of the municipality for current expenditure. Thus, we conclude that spillover effects drive the strategic interaction.

The law 56/2014 (the so-called Delrio law), endorsed by the Lombardy region with the regional law 19/2015, defines the core spending functions that must remain in the hands of provinces. The remaining non-core functions will be, according to the law, managed by the regions. In this paper we identify the core functions by comparing those of the actual provincial budget to those defined by the Delrio law. We then propose to quantify the possible savings by comparing per capita expenditures (remained to provinces) of demographically similar provinces. In particular, we compare per capita expenditures of Lombardy provinces with per capita average expenditure of Italian provinces belonging to the respective population class. In addition, the work, identifies efficient management areas of non-core functions that the law 56/2014 delegates to regions.

The abolition of the municipal property tax on owner-occupied dwellings accomplished in Italy in 2008 offers a quasi-natural experiment that allows for the identification of the presence of political budget cycles - the incentives for municipalities close to elections to manipulate policy outcome decisions. Our empirical analysis shows that the reform impacted on municipalities that in 2008 were in their pre-electoral year, by expanding the size of their budget in the form of an increase of current expenditure and fees and charges, but this did not occurred in municipalities that experienced their pre-electoral year before 2008.

The aim of this paper is to determine to what extent and how federal taxes affect local tax decisions. Testing the impact of an increase in the federal tax on horizontal tax competition with Canada-US data for 1984-1994, it finds evidence that an increase in federal tax makes horizontal tax reactions weaker. This is because an increase in federal tax raises the cost, in terms of utility of income, of a unit increase in the province's tax rate. On the methodological side, it is possible to estimate the impact of the federal tax on the fiscal policy of the province without neglecting control for year effects, which cannot be used in the empirical literature because they are perfectly collinear with the federal tax.

In questo contributo si discute come il saldo utile per individuare l’obiettivo del patto di stabilità interno, calcolato utilizzando la contabilità euro-compatibile, possa portare ad una ripartizione dell’indebitamento consolidato della PA molto diversa da quella che si avrebbe utilizzando la contabilità di competenza mista, attualmente usata per calcolare l’obiettivo del patto di stabilità interno per i comuni. La contabilità eurocompatibile classifica infatti alcune voci rilevanti del conto corrente per cassa, che invece nella contabilità di competenza mista sono classificate per competenza ed inoltre elimina dal conto capitale le voci relative alle partite finanziarie. Si utilizzano i dati dei consuntivi 2009-2011 aggregati per i comuni italiani applicando la contabilità euro-compatibile e quella di competenza mista. Quindi si approfondisce il ruolo delle partite finanziarie e degli aggiustamenti contabili, necessari a raccordare le due contabilità, analizzando la loro distribuzione distinta per zona geografica e per regione: il contributo all’indebitamento varia, sia a livello di comparto comunale, che tra un comune e l’altro a seconda della contabilità utilizzata.

We setup a model in which the residents of two neighboring municipalities can use the services provided by public infrastructures located in both jurisdictions. If services are either complements or substitutes in use, the municipalities strategically interact when investing in infrastructures; moreover, when they differ in population size, the small municipality reacts more to the expenditure of its neighbor than the big one. The theoretical predictions are then tested by estimating the determinants of the stock of public infrastructures of the municipalities belonging to the Autonomous Province of Trento, in Italy.

We examine the design of fiscal equalization transfers aimed at inter-regional redistribution in a setting in which special interest groups distort the fiscal policies of local governments. Equity always calls for tax-base equalization while efficiency calls for tax-base equalization of fiscal capacities backed by strong lobby groups and for tax-revenue equalization of those backed by weak lobby groups. Hence, it is optimal to rely only on tax-base equalization if the special interest groups are similar in terms of lobbying power, whereas a mixed system is optimal if they are highly heterogeneous. Tax competition reinforces the role of tax-base, while tax exporting that of tax-revenue, fiscal equalization.

We use data for all Italian municipalities from 2001 to 2007 to empirically test the extent to which two different electoral rules, which hold for small and large municipalities, affect fiscal policy decisions at local level. Municipalities with fewer than 15,000 inhabitants elect their mayors in accordance with a single-ballot plurality rule where only one list can support her/him, while the rest of the municipalities uses a runoff plurality rule where multiple lists can support her/him. Per capita total taxes, charges and current expenditure in large municipalities are lower than in small ones if the mayor of the large municipality does not need a broad coalition to be elected, otherwise the use of a single- or double-ballot rule does not make any difference in the policy outcome.

US cigarette excise tax rates are state interdependent. In contrast, we cannot reject the absence of interdependence for gasoline taxation, which shows a very high degree of inertia. A one-cent increase in the neighbors’ cigarette tax rate implies a contemporaneous cigarette tax increase of around 0.24 cents. However, identifying the source of interaction is key to its normative assessment. Our empirical analysis—spanning the period 1992–2006—finds that cigarette tax interdependence is politically driven: only states with non-term-limited governors react (providing evidence of yardstick competition), basically as the election year approaches. We also show this political motivation is in accordance with List and Sturm’s (Q J Econ 121:1249–1281, 2006) hypothesis of single-issue voters: politicians tend to favor smokers when they are non-term limited, being this effect counteracted when they are term limited.

L'aggiustamento fiscale 2009-2013 intrapreso dall'Italia pone forte il problema dell'equita' della sua distribuzione sui diversi comparti della Pubblica Amministrazione. In questo contributo si pone in evidenza come il saldo cosiddetto euro-compatibile possa portare ad una distribuzione dell'aggiustamento fiscale molto differente da quella ottenuta con il saldo del patto di stabilita' interno. Il saldo euro-compatibile classifica alcune voci rilevanti del conto corrente per cassa, che invece nel saldo del patto di stabilita' interno sono classificate per competenza ed inoltre elimina dal conto capitale le voci relative alle partite finanziarie. Utilizzando i dati dei consuntivi 2009-2011 relativi ai dieci Comuni capoluogo dell'Emilia Romagna, applichiamo il saldo euro-compatibile e confrontiamo i risultati con quelli del saldo del patto di stabilita', facendo luce sulle determinanti delle differenze.

We use data for all Italian municipalities, from 2001-2006, to empirically test the extent to which two electoral rules, which hold, for small and large municipalities, affect fiscal policy decisions. Municipalities with fewer than 15,000 inhabitants elect their mayors in accordance with a single ballot plurality rule while the rest of the municipalities uses a run-off plurality rule. Per capita total taxes, charges and current expenditure in large municipalities are lower than in small ones if the mayor of the large municipality does not need a broad coalition to be elected.

Most US federal grants are allocated through arguably obsolete formulas, leading fast growing states to contend that they are not receiving their fair share of the budget. We shed lights on this issue analyzing the allocation of formula and nonformula grants during the period 1978-2002. We find that states with fast growing population are penalized in the allocation of formula programs. The estimated losses are sizeable and heavily concentrated among the three fastest growing states. Nevertheless, the majority of the US states is on the winning side, thus providing a plausible explanation for the status quo bias in budgetary formulas.

We consider a federation with two layers of government, in which Leviathan policy makers levy an excise tax on a consumption good that generates a negative externality and that is produced in an imperfectly competitive market. When both layers of government are allowed to tax, policy choices are affected also by vertical tax competition. In this setting, tax policy in general is not efficient. We then examine how special interest groups may influence tax policy by lobbying the policy makers. We find that, depending on market structure and on the level of the externality, lobbying can improve efficiency, and that tax-base sharing by two layers of government can be more efficient than taxation by a single layer.

US excise tax rates are state interdependent. For example, a one-cent increase in the cigarette tax rate implies a contemporaneous cigarette tax increase of 0.18 cents in the neighboring state, while in the case of gasoline taxation the reaction to the same rise is just 0.11 cents. However, identifying the source of this interaction is key to its normative assessment. Our empirical analysis – spanning the period 1992 to 2006 – finds that interdependence in the case of gasoline taxation is driven just by the (fear of) base mobility. By contrast, in the case of cigarette taxation, it is politically driven: only states with non-term limited governors react (providing evidence of yardstick competition), especially as the election year approaches. Additionally, cigarette taxes tend to be lower when the election year approaches, but again only under non-term limited governors, while the existence of smokers in the state tends to reduce the level of cigarette taxation independently of the electoral cycle and of the presence of a term limited governor.

Besley and Rosen (1998) were the first authors to empirically estimate the presence of vertical tax externalities. They tested it on gasoline and tobacco unitary taxes. However, they did not take into account the difference in cost of living across states: high cost areas pay less in real terms than low cost areas, since the nominal unit tax on cigarettes and gasoline does not differ according to the state in which it is applied. Consequently, we propose that vertical tax competition can be estimated by deflating all financial variables using the House Price Index (HPI), which is disaggregated by states. This produces a federal tax variable that is expressed in real terms and shows cross-sectional variation. This empirical strategy enabled us to disentangle the vertical interdependence between state and federal tax rates from aggregate shocks over time, using US data from 1975 to 2006 on gasoline and tobacco. We found significant horizontal tax competition, which was higher for cigarettes, but no vertical tax reaction. The results were robust to the period analyzed.

In this paper we provide new evidence on the importance of the so-called small state advantage for the allocation of the US federal budget. We also provide a new interpretation of the available empirical evidence. Analyzing outlays for the period 1978-2002, we show that not only does the population size of a state matter, but so too does its dynamics. Once population scale and change effects are separated, the impact of population size is substantially reduced, and population change turns out to be an important explanatory variable of current spending patterns. The impact of scale and change effects varies substantially across spending programs. Small states enjoy an advantage in defense spending, whereas fast growing ones are penalized in grants allocations. Our results imply that the interests of the states are not easily aligned around their population size alone. The distortion associated with population dynamics is concentrated on federal grants where formulas play a substantial role in limiting budgetary adjustments. Hence, a large part of the inverse relationship between spending and population appears to be driven by mechanisms of budgetary inertia which are compatible with incrementalist theories of budget allocation.

We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers of government is not optimal either when the influence of the lobby is weak, whatever the degree of market power. We also examine a richer set of tax setting outcomes, by considering the possibility that state policy makers have heterogeneous tax policy objectives.

We test for the state interdependence of gasoline and cigarette taxation in the US (1975-2006). We estimate a tax reaction function, and find that state interdependence is due solely to yardstick competition, since any interaction disappears completely in the case of states with lame duck governors. This result holds for both taxes: the short-run reaction of those states whose governor is eligible to stand for reelection is 0.13 and 0.21 for gasoline and cigarette taxation, respectively. In the long run, the cigarette tax rates levied in a jurisdiction match those of its neighbors perfectly, while the long-run reaction in the case of gasoline is much lower at 0.72.