Competing in Taxes and Investment under Fiscal Equalization
AbstractThe paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital. Regions' choices determine allocation of capital across the regions and their revenues under a tax sharing scheme. This framework allows for the examination of different approaches to fiscal equalization schemes (Boadway and Flatters, 1982, and Weingast, 2006). We show that tax competition distorts (downwards) public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes. However, the equalization schemes remain beneficial not only for the federation and, under a low degree of regional asymmetry, also for each region.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6431.
Date of creation: Aug 2007
Date of revision:
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Other versions of this item:
- Hindriks, Jean & Peralta, Susana & Weber, Shlomo, 2008. "Competing in taxes and investment under fiscal equalization," Journal of Public Economics, Elsevier, vol. 92(12), pages 2392-2402, December.
- HINDRIKS, Jean & PERALTA, Susana & WEBER, Shlomo, 2006. "Competing in taxes and investment under fiscal equalization," CORE Discussion Papers 2006109, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Jean, HINDRIKS & Susana, PERALTA & Sholmo, WEBER, 2006. "Competing in taxes and investment under fiscal equalization," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2006062, Université catholique de Louvain, Département des Sciences Economiques.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-09 (All new papers)
- NEP-GEO-2007-09-09 (Economic Geography)
- NEP-PBE-2007-09-09 (Public Economics)
- NEP-PUB-2007-09-09 (Public Finance)
- NEP-URE-2007-09-09 (Urban & Real Estate Economics)
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