This paper investigates whether reputation-building strategies guide U.S. governors’ responses to changes in federal cigarette taxes (i.e. vertical tax interactions). Using 1975-2000 state cigarette tax data, we find that reputation-building strategies affect the nature of vertical tax externalities. Lame duck governors exhibit a more negative response to changes in the federal cigarette tax. Thus, by reducing the state tax base and by causing a decline in the state tax, an increase in the federal tax rate reduces state tax revenues in states headed by lame ducks.
Fredriksson, Per G. and Mamun, Khawaja A., "Gubernatorial Reputation and Vertical Tax Externalities: All Smoke, No Fire?" (2009). WCBT Working Papers. 6.