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This paper aims to analyze the fiscal interactions arising from gasoline taxation in a federation. We adopt a general theoretical model for studying simultaneous vertical and horizontal tax competition by i) introducing a specic monetary cost of refueling ii) assuming that the price of the gasoline is affected by either excise taxes (local and federal) and the VAT rate, ii) considering elastic demand for gasoline. We show that horizontal taxes are strategic complements but vertical taxes are strategic substitutes. Moreover, horizontal excise taxes are strategic substitutes with VAT whereas the result is unclear for the reaction between local and federal excise taxes. Finally, we show that the reaction functions of the different taxes crucially differ according to the pattern of decision-making (Social planner, Nash or decentralized leadership).
