In this paper, the authors address the question of how the tax burden in a federation should be distributed across the different jurisdictions so that the social cost of providing government services is minimized. Using optimal tax theory, they derive formulas for the optimal equalization grants...

Should provincial business taxes be deductible under a federal profit tax? We show that the "optimal deductible," which neutralizes the vertical fiscal externality between the federal and provincial government, is the change in the federal tax base per dollar of tax revenue collected by the...

Nominal price rigidity is explained in the Sheshinski-Weiss (SW) model by costly price adjustment. The predictions of the SW model, which describe a firm's optimal forward-looking price adjustment strategy, were derived and tested using microdata on the timing and the magnitude of premium...