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Interjurisdictional Spillovers, Decentralized Policymaking, and the Elasticity of Capital Supply

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  • Thomas Eichner
  • Marco Runkel

Abstract

This paper points to the important role that the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of policymaking in a decentralized economy with mobile capital and spillovers among jurisdictions. In accordance with previous studies, we show that under the assumption of a fixed capital supply (zero capital supply elasticity) the decentralized policy choice is optimal. If the capital supply elasticity is strictly positive, however, capital tax rates are inefficiently low in the decentralized equilibrium. (JEL E22, E61, H25, H77)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.5.2349
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 5 (August)
Pages: 2349-57

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:5:p:2349-57

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  1. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S3-27, April.
  2. Hikaru Ogawa & David E. Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," CESifo Working Paper Series 2142, CESifo Group Munich.
  3. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
  4. Gylfason, Thorvaldur, 1993. " Optimal Saving, Interest Rates, and Endogenous Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 517-33, December.
  5. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  6. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
  7. Beck, John H., 1983. "Tax competition, uniform assessment, and the benefit principle," Journal of Urban Economics, Elsevier, vol. 13(2), pages 127-146, March.
  8. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
  9. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
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Cited by:
  1. Thomas Eichner & Rüdiger Pethig, 2013. "Self-enforcing environmental agreements and capital mobility," Volkswirtschaftliche Diskussionsbeiträge 162-13, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  2. Harrison Fell & Daniel T. Kaffine, 2013. "Think locally, act locally: Can decentralized planning really achieve first-best in the presence of environmental spillovers?," Working Papers 2013-07, Colorado School of Mines, Division of Economics and Business.
  3. Pi, Jiancai & Zhou, Yu, 2014. "Tax competition in federations revisited," Economics Letters, Elsevier, vol. 123(1), pages 104-107.
  4. Gregor Schwerhoff & Ottmar Edenhofer, 2013. "Is Capital Mobility Good for Public Good Provision?," CESifo Working Paper Series 4420, CESifo Group Munich.

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