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Fiscal Competition, Capital-Skill Complementarity, and the Composition of Public Spending

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  • Rainald Borck

Abstract

Following Keen and Marchand (1997), the paper analyzes the effect of fiscal competition on the composition of public spending in a model where capital and skilled workers are mobile while low-skilled workers are immobile. Taxes are levied on capital and labor. Each group of workers benefits from a different kind of public good. Mobility of skilled workers provides an incentive for jurisdictions to spend too much on public goods benefiting the skilled and too little on those benefiting low-skilled workers. In the case of capital-skill complementarity, this incentive is strengthened. The analysis is then extended to allow for mobility of unskilled labor.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 61 (2006)
Issue (Month): 4 (February)
Pages: 488-499

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200602)61:4_488:fcccat_2.0.tx_2-n

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Keywords: tax competition; capital-skill complementarity; public spending;

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References

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  1. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
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  3. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Munich Reprints in Economics 19402, University of Munich, Department of Economics.
  4. Mariassunta Giannetti, 2001. "Skill Complementarities and Migration Decisions," LABOUR, CEIS, vol. 15(1), pages 1-31, 03.
  5. Mutsumi Matsumoto, 2000. "A Note on the Composition of Public Expenditure under Capital Tax Competition," International Tax and Public Finance, Springer, vol. 7(6), pages 691-697, December.
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  7. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Journal of Public Economics, Elsevier, vol. 71(3), pages 441-458, March.
  8. Paolo Mauro & Antonio Spilimbergo, 1998. "How Do the Skilled and the Unskilled Respond to Regional Shocks? the Case of Spain," IMF Working Papers 98/77, International Monetary Fund.
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  10. Matsumoto, Mutsumi, 2004. "The mix of public inputs under tax competition," Journal of Urban Economics, Elsevier, vol. 56(2), pages 389-396, September.
  11. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  12. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  13. Jennifer Hunt, 2000. "Why Do People Still Live in East Germany?," NBER Working Papers 7564, National Bureau of Economic Research, Inc.
  14. Jan K. Brueckner, 1999. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  15. Bergstrom, Villy & Panas, Epaminondas E, 1992. "How Robust Is the Capital-Skill Complementarity Hypothesis?," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 540-46, August.
  16. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November.
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Cited by:
  1. Kappeler , Andreas & Solé-Ollé, Albert & Stephan, Andreas & Välilä, Timo, 2012. "Does fiscal decentralization foster regional investment in productive infrastructure?," Working Paper Series in Economics and Institutions of Innovation 273, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  2. Lenka Šťastná, 2009. "Spatial Interdependence of Local Public Expenditures: Selected Evidence from the Czech Republic," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 007-025, March.

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