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Political support for tax decentralisation

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Author Info
PERALTA, Susana
Abstract

This paper presents a spatial model of a city with two unequally productive jurisdictions. City residents bear a commuting cost to work in either of the two jurisdictions. In each jurisdiction, a fixed public budget must be financed with a wage tax and a head-tax. We compare the first best optimum to tax decentralisation equilibria. From the total welfare viewpoint, tax competition is always inefficient. Inefficiency may be higher under utilitarian governments or majoritarian ones. If local governments are utilitarian, the more productive jurisdiction is better off at the first best than with tax competition, while the other is worst off. If they are majoritarian, both jurisdictions will under some conditions prefer the tax decentralisation to the first best.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2004024.

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Date of creation: 01 May 2004
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Handle: RePEc:cor:louvco:2004024

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Related research
Keywords: tax competition; commuting; median voter equilibria;

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Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
R5 - Urban, Rural, and Regional Economics - - Regional Government Analysis

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  16. van Ommeren, Jos & Rietveld, Piet & Nijkamp, Peter, 1999. "Job Moving, Residential Moving, and Commuting: A Search Perspective," Journal of Urban Economics, Elsevier, vol. 46(2), pages 230-253, September. [Downloadable!] (restricted)
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  21. Romana Khan & Peter F. Orazem & Daniel M. Otto, 2001. "Deriving Empirical Definitions of Spatial Labor Markets: The Roles of Competing Versus Complementary Growth," Journal of Regional Science, Blackwell Publishing, vol. 41(4), pages 735-756. [Downloadable!] (restricted)
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