Tax Competition Reconsidered

In a classic model of tax competition, we show that the level of public good provision and taxation in a Nash equilibrium can be efficient or inefficient with either too much, or too little public good provision. The key is whether there exists a unilateral incentive to deviate from the efficient state and, if so, whether this entails raising or lowering taxes. A priori, there is no reason to suppose the incentive is in either one direction or the other. In addition, we demonstrate conditions ensuring existence of an asymmetric Nash equilibrium with efficient public good provision. As in prior literature, local amenities enhance capital’s productivity. Prior literature, however, focuses on under-provision of public goods.


Issue Date:
Dec 12 2001
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/269396
Language:
English
Total Pages:
57




 Record created 2018-03-08, last modified 2018-03-08

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