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The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions

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Author Info
Eckhard Janeba
Guttorm Schjelderup

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Abstract

The views on the welfare effects of tax competition differ widely. Some see the fiscal externalities as the cause for underprovision of public goods, while others see tax competition as the means of reducing government inefficiencies. Using a comparative politics approach we show that tax competition among presidential-congressional democracies is typically welfare improving, while harmful among parliamentary democracies if under the latter public goods are sufficiently valued. The results hold when politicians seek re-election because of exogenous benefits of holding office. By contrast, when politicians hold office only to extract rents, tax competition is harmful if politicians are sufficiently patient. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2009.02263.x
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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 119 (2009)
Issue (Month): 539 (07)
Pages: 1143-1161
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Handle: RePEc:ecj:econjl:v:119:y:2009:i:539:p:1143-1161

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  1. Rauscher, Michael, 1998. "Leviathan and Competition among Jurisdictions: The Case of Benefit Taxation," Journal of Urban Economics, Elsevier, vol. 44(1), pages 59-67, July. [Downloadable!] (restricted)
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  2. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Blackwell Publishing, vol. 59(4), pages 689-701, October. [Downloadable!] (restricted)
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  3. Torsten Persson & Gerard Roland & Guido Tabellini, 2000. "Comparative Politics and Public Finance," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1121-1161, December. [Downloadable!] (restricted)
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  4. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January. [Downloadable!] (restricted)
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  5. Lorz, Oliver, 1998. "Capital mobility, tax competition, and lobbying for redistributive capital taxation," European Journal of Political Economy, Elsevier, vol. 14(2), pages 265-279, May. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Daniel Diermeier & Michael Keane & Antonio Merlo, 2005. "A Political Economy Model of Congressional Careers," American Economic Review, American Economic Association, vol. 95(1), pages 347-373, March. [Downloadable!]
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  8. Besley, Timothy J. & Smart, Michael, 2002. "Does Tax Competition Raise Voter Welfare?," CEPR Discussion Papers 3131, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May. [Downloadable!] (restricted)
  10. Eckhard Janeba & Guttorm Schjelderup, 2002. "Why Europe Should Love Tax Competition - and the U.S. Even More So," NBER Working Papers 9334, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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