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The Political Economy of Tax Coordination as a Bargaining Game between Bureaucrats and Politicians

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  • Fuest, Clemens

Abstract

In the public finance literature, the view prevails that tax competition among countries gives rise to an underprovision of public goods and that coordinated tax increases are therefore desirable. Public choice arguments, in contrast, suggest that tax coordination may not be in the interest of the taxpayers/citizens because imperfections of the political process (political distortions) may lead to a waste of tax money. According to this view, tax competition is a desirable check on the power to tax whereas tax coordination would only relax the budget constraint of an inefficient public sector. The present paper integrates the underprovision argument and the public choice view into a common theoretical framework. The government is assumed to consist of politicians and bureaucrats with diverging interests. Fiscal policy is modelled as the outcome of a bargaining game between the bureaucrats and the politicians. It turns out that coordinated tax increases always raise the provision of public goods but also increase the cost of political distortions. The effect on the welfare of the representative citizen may be positive or negative, depending in particular on the distribution of bargaining power between bureaucrats and politicians. Copyright 2000 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 103 (2000)
Issue (Month): 3-4 (June)
Pages: 357-82

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Handle: RePEc:kap:pubcho:v:103:y:2000:i:3-4:p:357-82

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Web page: http://www.springerlink.com/link.asp?id=100332

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Cited by:
  1. Fuest, Clemens & Huber, Bernd, 2001. "Why is there so little tax coordination? The role of majority voting and international tax evasion," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 299-317, April.
  2. Alejandro Esteller-Moré, 2011. "Is the tax administration just a money machine? Empirical evidence on redistributive politics," Economics of Governance, Springer, vol. 12(3), pages 275-299, September.
  3. J. Aronson & James Dearden & Vincent Munley, 2009. "The impact of surplus sharing on the portfolio mix of public sector defined benefit pension plans: a public choice approach," Public Choice, Springer, vol. 140(1), pages 161-184, July.
  4. Katharina Holzinger, 2003. "Tax Competition and Tax Co-operation in the EU: The Case of Savings Taxation," EUI-RSCAS Working Papers 7, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  5. Marcus Drometer, 2012. "Bureaucrats and short-term politics," Public Choice, Springer, vol. 151(1), pages 149-163, April.
  6. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
  7. Wolfgang Eggert & Peter Birch Sørensen, 2007. "The Effects of Tax Competition when Politicians Create Rents to Buy Political Support," EPRU Working Paper Series 07-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  8. Brückner, Matthias, 2001. "Strategic delegation and international capital taxation," ZEI Working Papers B 22-2001, ZEI - Center for European Integration Studies, University of Bonn.
  9. Clemens Fuest & Bernd Huber, 2001. "Tax Competition and Tax Coordination in a Median Voter Model," Public Choice, Springer, vol. 107(1), pages 97-113, April.
  10. Eggert, Wolfgang & Sørensen, Peter Birch, 2008. "The effects of tax competition when politicians create rents to buy political support," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1142-1163, June.

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