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Tax competition in a fiscal union with decentralized leadership

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  • Kothenburger, Marko

Abstract

This paper examines capital tax competition in the presence of an interstate transfer policy without federal commitment. Lack of commitment implies that tax policy is chosen prior to federal transfers. The paper’s main result is that ex-post federal policy internalizes horizontal fiscal externalities, insulating tax policy from capital mobility. Federal policy, however, introduces a new source of inefficiency unrelated to tax competition. Specifically, ex-post transfer payments prove to be equivalent to an interstate revenue-sharing system which may render federal intervention in the presence of fiscal externalities welfare-deteriorating relative to tax competition.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 55 (2004)
Issue (Month): 3 (May)
Pages: 498-513

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Handle: RePEc:eee:juecon:v:55:y:2004:i:3:p:498-513

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Web page: http://www.elsevier.com/locate/inca/622905

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References

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Citations

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Cited by:
  1. Breuillé, Marie-Laure & Vigneault, Marianne, 2010. "Overlapping soft budget constraints," Journal of Urban Economics, Elsevier, Elsevier, vol. 67(3), pages 259-269, May.
  2. Allers, Maarten A. & Toolsema, Linda A., 2012. "Welfare financing: Grant allocation and efficiency," Research Report, University of Groningen, Research Institute SOM (Systems, Organisations and Management) 12004-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  3. Arthur Caplan & Emilson Silva, 2011. "Impure public goods, matching grant rates and income redistribution in a federation with decentralized leadership and imperfect labor mobility," International Tax and Public Finance, Springer, Springer, vol. 18(3), pages 322-336, June.
  4. Marie-Laure Breuillé & Thierry Madiès & Emmanuelle Taugourdeau, 2007. "Fiscal federalism and soft budget constraint: does the nature of public spending matter?," EconomiX Working Papers, University of Paris West - Nanterre la Défense, EconomiX 2007-16, University of Paris West - Nanterre la Défense, EconomiX.
  5. Yongzheng Liu, 2014. "Does competition for capital discipline governments? The role of fiscal equalization," International Tax and Public Finance, Springer, Springer, vol. 21(3), pages 345-374, June.
  6. Aronsson, Thomas, 2010. "Optimal income taxation and decentralized fiscal federalism," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 40(4), pages 187-195, July.
  7. Akai, Nobuo & Sato, Motohiro, 2008. "Too big or too small? A synthetic view of the commitment problem of interregional transfers," Journal of Urban Economics, Elsevier, Elsevier, vol. 64(3), pages 551-559, November.
  8. Marko Köthenbürger, 2006. "Ex-Post Redistribution in a Federation: Implications for Corrective Policy," CESifo Working Paper Series, CESifo Group Munich 1754, CESifo Group Munich.
  9. Breuillé, Marie-Laure & Madiès, Thierry & Taugourdeau, Emmanuelle, 2010. "Gross versus net equalization scheme in a federation with decentralized leadership," Journal of Urban Economics, Elsevier, Elsevier, vol. 68(2), pages 205-214, September.
  10. Zarko Y. Kalamov, 2012. "Prudent Fiscal Policy in the Presence of Bailout Expectations," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 68(4), pages 365-382, December.
  11. Shun-ichiro Bessho & Kimiko Terai, 2008. "Competition for Private Capital and Central Grants: The Case of Japanese Industrial Parks," Working Papers, University of California-Irvine, Department of Economics 080909, University of California-Irvine, Department of Economics.
  12. Thomas Aronsson Aronsson & Thomas Jonsson & Tomas Sjögren, 2006. "Environmental Policy and Optimal Taxation in a Decentralized Economic Federation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 62(3), pages 437-454, September.
  13. Aronsson, Thomas & Persson, Lars, 2012. "Decentralized fiscal federalism revisited: Optimal income taxation and public goods under horizontal leadership," Economics Letters, Elsevier, Elsevier, vol. 117(1), pages 223-226.
  14. Robin Boadway & Jean-Francois Tremblay, 2006. "A Theory of Vertical Fiscal Imbalance," Working Papers, Queen's University, Department of Economics 1072, Queen's University, Department of Economics.
  15. Koethenbuerger, Marko, 2008. "Federal tax-transfer policy and intergovernmental pre-commitment," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 38(1), pages 16-31, January.
  16. Nobuo Akai & Motohiro Sato, 2005. "leadership meets soft budget," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-391, CIRJE, Faculty of Economics, University of Tokyo.

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