We study the role of tax share and transparency of governance on growth and stagnation. A local government maximizes its private benefits using two activities. The first one consists of providing local public goods that help local firms to increase profits, thus enlarging tax revenue. The second one consists of extortion. We show that there is a threshold level of local government tax share, and a threshold level of transparency. Below these thresholds, the economy will stagnate and above them, the economy will achieve perpetual growth.
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1248.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Kemp, Murray C & Long, Ngo Van & Shimomura, Koji, 1993.
"Cyclical and Noncyclical Redistributive Taxation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 415-29, May.
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Aaron Tornell & Philip R. Lane, 1999.
"The Voracity Effect,"
American Economic Review,
American Economic Association, vol. 89(1), pages 22-46, March.
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