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Interregional tax competition and intraregional political competition: The optimal provision of public goods under representative democracy

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  • Ihori, Toshihiro
  • Yang, C.C.
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    Abstract

    This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods under representative democracy à la (Osborne and Slivinski, 1996) and (Besley and Coate, 1997). As an extension of Hoyt's (1991) finding that intensified tax competition is always harmful and aggravates the extent to which public goods are undersupplied in a region, we show that intensified tax competition can be beneficial if political as well as tax competition is considered. In particular, we identify plausible conditions under which (i) there is an optimal intensity of tax competition such that the interaction between interregional tax competition and intraregional political competition will result in the optimal provision of public goods and (ii) intensified tax competition will be beneficial if and only if the degree of tax competition is less than this optimal intensity.

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    File URL: http://www.sciencedirect.com/science/article/B6WMG-4X0879B-1/2/81427dc41a7dc15140a3a6a532299645
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    Bibliographic Info

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

    Volume (Year): 66 (2009)
    Issue (Month): 3 (November)
    Pages: 210-217

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    Handle: RePEc:eee:juecon:v:66:y:2009:i:3:p:210-217

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

    Related research

    Keywords: Tax competition Political competition Public goods;

    References

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    1. Tim Besley & Stephen Coate, . "An Economic Model of Representative Democracy," Penn CARESS Working Papers ecf70d639d700dba5327ab0c8, Penn Economics Department.
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    Cited by:
    1. Rupayan Pal & Ajay Sharma, 2011. "Political competition and leadership in tax competition," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-024, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Rupayan Pal & Ajay Sharma, 2011. "Competition for foreign capital: Endogenous objective, public investment and tax," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-021, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Atsushi Kawamoto, 2012. "An empirical analysis on intergovernmental strategic interaction in tax policy: Evidence from capital taxation in Japan," Discussion papers ron238, Policy Research Institute, Ministry of Finance Japan.
    4. Pal, Rupayan & Sharma, Ajay, 2013. "Endogenizing governments' objectives in tax competition," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 570-578.

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