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Decentralization and Tax Competition between Asymmetrical Local Governments

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  • Clément Carbonnier

Abstract

This article presents a model of tax competition between an arbitrarily large number of asymmetrical jurisdictions. Tax competition induces lower corporate taxes and lower public input provision than does tax coordination. This bias decreases with respect to the size and number of jurisdictions. Tax competition constitutes a cost of decentralization that may balance the gains presented by the decentralization theorem. A French panel of municipalities and intermunicipal jurisdictions is used to test these results, which are confirmed. Furthermore, the corporate tax increase due to cooperation leads to an increase in the corporate tax base: the fully decentralized situation is suboptimal.

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  • Clément Carbonnier, 2013. "Decentralization and Tax Competition between Asymmetrical Local Governments," Public Finance Review, , vol. 41(4), pages 391-420, July.
    • Handle: RePEc:sae:pubfin:v:41:y:2013:i:4:p:391-420
    DOI: 10.1177/1091142113482352
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    Cited by:

    1. Clémence Tricaud, 2021. "Better Alone? Evidence on the Costs of Intermunicipal Cooperation," Working Papers hal-03380333, HAL.
    2. Nakatani, Ryota, 2023. "Revenue Decentralization and the Probability of a Fiscal Crisis: Is There a Tipping Point for Adverse Effects?," MPRA Paper 119032, University Library of Munich, Germany.
    3. repec:hal:journl:hal-03380333 is not listed on IDEAS
    4. Ida, Tomoya & Wilhelmsson, Mats, 2014. "An Empirical Test Of The Dominant Tax Externality In Sweden," Working Paper Series 14/5, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    5. Elisabeth Gugl & George R. Zodrow, 2014. "The Efficiency of “Benefit-Related” Business Taxes," Working Papers 1406, Oxford University Centre for Business Taxation.
    6. Clémence Tricaud, 2019. "Better alone? Evidence on the costs of intermunicipal cooperation," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2019-12-ccr, Condorcet Center for political Economy.

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