Dr. Michael Smart, University of Toronto

Dr. Michael Smart, University of Toronto

Gerri C. LeBow Hall
3220 Market Street
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Philadelphia, PA 19104
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An estimable model of income redistribution in a federation: Musgrave Meets Oates

We develop a theory of cross-border income shifting in response to personal taxation,
and examine its implications for the revenue potential and excess burden of personal taxes
at the subnational level. We estimate the elasticity of tax avoidance and of cross-border tax
base shifting using data on top income shares for Canadian provinces, finding that interprovincial
shifting accounts for about two-thirds of total tax avoidance. We then propose a
model demonstrating that a properly-chosen federal tax rate can offset the horizontal fiscal
externality, allowing decentralized subnational tax rates to replicate the national welfare



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  • Faculty
  • PhD


  • Economics