In this paper, we model a federal economy where perfectly mobile labour supply is taxed on an ad valorem basis by the federal as well as lower-level (state) governments. We find that either under- or overtaxation occurs, under similar conditions as in Keen and Kotsogiannis (2002, 2004). However,...

This paper revisits the soft budget constraint problem, pushing sub-central (state) borrowing to the limit in multi-tiered countries. Accounting for the institutional design and political practice common to many federations, bargaining and log-rolling are introduced to the analysis. In our...

In this paper, commuting is introduced to a federal economy where benevolent lower-level (state) governments levy an ad valorem tax on labour income. This results in inefficiently low levels of taxation, even when households as a whole do not migrate. Indeed, rather than attracting more workers...