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Tax competition and revelation of preferences for public expenditure

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  • BUCOVETSKY, Sam

    (York University and Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • MARCHAND, Maurice

    (Center for Operations Research and Econometrics (CORE) and Institut d'Administration et de Gestion (IAG), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • PESTIEAU, Pierre

    ()
    (Université de Liège and Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

This paper considers a federal country composed of local jurisdictions which differ in their taste for public goods and finance public spending by a source-based tax on capital income. The taste for public goods is private information of jurisdictions. By transferring differential grants to jurisdictions the central government aims at both reducing the misallocation of capital due to the diverging jurisdictional tax rates on capital income and getting closer to the optimal balance between private and public consumption in every jurisdiction. The purpose of the paper is to characterize the optimal grant policy of the central government. It is shown that there persist at the optimum both some misallocation of capital and some violation of the Samuelson rule in every jurisdiction.

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File URL: http://alfresco.uclouvain.be/alfresco/download/attach/workspace/SpacesStore/32213202-6f52-4de9-b3ae-e9ce045df7b6/coredp_1997_03.pdf
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997003.

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Date of creation: 01 Jan 1997
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Handle: RePEc:cor:louvco:1997003

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