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Tax Competition and the Choice of Tax Structure in a Majority Voting Model

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  • Rainald Borck

Abstract

This note studies the choice of tax structure in a majority voting model with tax competition. Regions may tax mobile capital or immobile labor. Individuals differ with respect to their relative endowments of labor and capital. Even though a lump sum tax is available, the equilibrium capital tax in a jurisdiction may be positive. In a symmetric equilibrium, this will be true if the median capital endowment is smaller than average.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.40220.de/dp335.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 335.

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Length: 11 p.
Date of creation: 2003
Date of revision:
Handle: RePEc:diw:diwwpp:dp335

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Keywords: tax competition; voting;

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References

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  1. Torsten Persson & Guido Tabellini, . "Political Economics and Public Finance," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 149, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 21(3), pages 333-350, November.
  3. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1759, C.E.P.R. Discussion Papers.
  4. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  5. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Fuest, Clemens & Huber, Bernd, 2001. "Tax competition and tax coordination in a median voter model," Munich Reprints in Economics, University of Munich, Department of Economics 20292, University of Munich, Department of Economics.
  7. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers, John Deutsch Institute for the Study of Economic Policy 4, John Deutsch Institute for the Study of Economic Policy.
  8. Fuest, Clemens & Huber, Bernd, 2001. " Tax Competition and Tax Coordination in a Median Voter Model," Public Choice, Springer, Springer, vol. 107(1-2), pages 97-113, April.
  9. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  10. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  11. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
  12. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, Econometric Society, vol. 46(2), pages 317-30, March.
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Cited by:
  1. Peralta, Susana & van Ypersele, Tanguy, 2006. "Coordination of capital taxation among asymmetric countries," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 36(6), pages 708-726, November.
  2. Borck, Rainald & Pfluger, Michael, 2006. "Agglomeration and tax competition," European Economic Review, Elsevier, Elsevier, vol. 50(3), pages 647-668, April.
  3. Janeba, Eckhard & Osterloh, Steffen, 2013. "Tax and the city: A theory of local tax competition and evidence for Germany," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 12-005 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Leonzio Rizzo, 2010. "Interaction between federal taxation and horizontal tax competition: theory and evidence from Canada," Public Choice, Springer, Springer, vol. 144(1), pages 369-387, July.
  5. Rainald Borck, 2005. "Fiscal Competition, Capital-Skill Complementarity, and the Composition of Public Spending," Discussion Papers of DIW Berlin 504, DIW Berlin, German Institute for Economic Research.
  6. Kangoh Lee, 2012. "Why is mobile capital taxed?," Journal of Economics, Springer, Springer, vol. 107(2), pages 157-181, October.
  7. Geys, Benny & Osterloh, Steffen, 2012. "Borders as boundaries to fiscal policy interactions? An empirical analysis of politicians' opinions on rivals in the competition for firms," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism", Social Science Research Center Berlin (WZB) SP II 2012-113, Social Science Research Center Berlin (WZB).
  8. Janeba, Eckhard & Osterloh, Steffen, 2013. "Tax and the city — A theory of local tax competition," Journal of Public Economics, Elsevier, Elsevier, vol. 106(C), pages 89-100.
  9. Thomas Eichner, 2009. "On intermediate utility functions," Quality & Quantity: International Journal of Methodology, Springer, Springer, vol. 43(1), pages 155-159, January.

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