Umberto Galmarini

Ad Valorem Taxation on Intermediate Goods in Oligopoly

Thepaper compares the efficiency of value added taxation (VAT),in which intermediate goods are not taxed, with that of cascadetaxation, in which they are, when levied on imperfectly-competitivevertically-related industries. One type of commodity taxationis not always superior to the other in terms of welfare. Indeed,when intermediate-goods have close substitutes, VAT is the optimalcommodity tax system. But when input substitutability is weakor absent and input producers have market power, they shouldbe taxed. In fact, in the absence of lump sum taxes and withno input substitutability, it is optimal to tax, not to subsidize,the most monopolistic industry. True cascading, in which bothupstream and downstream industries are taxed, is thus betterthan VAT when, besides no input substitutability and both intermediateand final good producers with market power, the needed revenuerequirement is not small. We therefore submit a rationale forthe coexistence of VAT and cascade taxation.

Fiscal equalization under political pressures

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.

Tax differentiation, lobbying, and welfare

To what extent a taxing authority should be granted the power to impose different tax schedules to different groups of taxpayers? Although the policy maker aims at maximizing social welfare, her tax policy may be distorted by the lobbying activity of taxpayers. In this political environment we characterize the conditions under which social welfare can be increased by restricting the set of tax instruments available to the policy maker; i.e., the scope of tax differentiation. We show that full differentiation is more costly, in terms of welfare distortions, when the lobbies are asymmetric in size, while minimal differentiation is more costly when the tax bases are asymmetric across different groups.

Switch towards tax centralization in Italy: a wake up for the local political budget cycle

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.

Optimality and Distortionary Lobbying: Regulating Tobacco Consumption

We examine policies directed at regulating tobacco consumption through three types of instruments: (i) an excise tax hindering consumption by increasing the price of cigarettes, (ii) prevention programs helping consumers to make choices that are more time consistent when trading-off the current pleasure from smoking and its future health harms, and (iii) smoking bans directly restricting consumption. First, on normative grounds, we focus on the optimal design of public policies maximizing the economy’s surplus. Second, in a positive perspective, we investigate how the lobbying activities of the tobacco industry, of smokers, and of anti-tobacco organizations may distort government intervention.