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The Politics of 1992: Fiscal Policy and European Integration

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  • Persson, Torsten
  • Tabellini, Guido

Abstract

The internal market in Europe will greatly increase the international mobility. How will this affect fiscal policy in different countries? The authors consider taxation of capital in a two-country model where a democratically chosen government in each country chooses tax policy. Higher capital mobility changes the politico-economic equilibrium in two ways. On the one hand, it leads to more tax competition between the countries: this "economic effect" tends to lower tax rates in both countries. On the other hand, it alters voters' preferences and makes them elect a different government: this "political effect" offsets the increased tax competition, although not completely. Copyright 1992 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 59 (1992)
Issue (Month): 4 (October)
Pages: 689-701

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Handle: RePEc:bla:restud:v:59:y:1992:i:4:p:689-701

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  1. Giovannini, A. & Hines, J.R.J., 1990. "Capital Flight And Tax Competition: Are There Viable Solutions To Both Problems?," Papers 51, Princeton, Woodrow Wilson School - Discussion Paper.
  2. Peter A. Diamond, 1982. "Protection, Trade Adjustment Assistance, and Income Distribution," NBER Chapters, in: Import Competition and Response, pages 123-150 National Bureau of Economic Research, Inc.
  3. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  4. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP -804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Roger H. Gordon, 1982. "An Optimal Taxation Approach to Fiscal Federalism," NBER Working Papers 1004, National Bureau of Economic Research, Inc.
  6. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  7. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, vol. 55(1), pages 53-70, September.
  8. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, vol. 46(2), pages 317-30, March.
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