The paper is a general equilibrium analysis of an energy-tax reform in a federation, measuring the welfare effects and the vertical tax externalities. Vertical tax externalities may arise when two government levels impose taxes on common tax bases. We show how the magnitude and sign of the...

Externalities such as pollution and road congestion are jointly produced by the use of intermediate inputs by firms and the consumption of final goods by households. Remarkably, to cope with such externalities policy proposals often suggest very partial tax reforms. A pertinent example is the...