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Redistribution, Fiscal Competition, and the Politics of Economic Integration

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  • Anke S. Kessler

    (University of Bonn)

Abstract

The paper examines the redistributive consequences of the economic integration of factor markets. We consider two countries that redistribute income among their residents. The social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants. If either capital or labour is internationally mobile, the countries engage in fiscal competition, i.e., the partial integration of capital or labour markets is detrimental to the countries' redistributive ability. A move from partial to full integration, however, may alleviate rather than intensify fiscal competition, particularly, if the two countries face sufficiently similar economic and political conditions. In such a situation, for example, increased integration of labour markets will soften the incentives compete for mobile capital. As a result, there is more redistribution in equilibrium and a majority of the population in each country is strictly better off.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0629.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0629

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  1. Roger H. Gordon, 1982. "An Optimal Taxation Approach to Fiscal Federalism," NBER Working Papers 1004, National Bureau of Economic Research, Inc.
  2. Myers, Gordon M., 1990. "Optimality, free mobility, and the regional authority in a federation," Journal of Public Economics, Elsevier, vol. 43(1), pages 107-121, October.
  3. Cremer, Helmuth & Pestieau, Pierre, 1996. "Distributive implications of European integration," European Economic Review, Elsevier, vol. 40(3-5), pages 747-757, April.
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  6. Keen, Michael, 1987. "Welfare effects of commodity tax harmonisation," Journal of Public Economics, Elsevier, vol. 33(1), pages 107-114, June.
  7. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 689-701, October.
  8. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
  9. Wildasin, D.E., 1987. "Nash equilibria in models of fiscal competition," CORE Discussion Papers 1987020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  12. Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-56, August.
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  15. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  16. Bucovetsky, S., 1995. "Rent seeking and tax competition," Journal of Public Economics, Elsevier, vol. 58(3), pages 337-363, November.
  17. Bolton, Patrick & Roland, Gérard, 1995. "The Break up of Nations: A Political Economy Analysis," CEPR Discussion Papers 1225, C.E.P.R. Discussion Papers.
  18. repec:fth:coluec:595 is not listed on IDEAS
  19. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
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Cited by:
  1. Lockwood, Ben & Makris, Miltiadis, 2006. "Tax incidence, majority voting and capital market integration," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1007-1025, August.
  2. Janeba, Eckhard & Wilson, John Douglas, 2011. "Optimal fiscal federalism in the presence of tax competition," Journal of Public Economics, Elsevier, vol. 95(11), pages 1302-1311.
  3. Haufler, Andreas & Lülfesmann, Christoph, 2013. "Reforming an Asymmetric Union: On the Virtues of Dual Tier Capital Taxation," Discussion Papers in Economics 14358, University of Munich, Department of Economics.
  4. Ihori, Toshihiro & Yang, C.C., 2009. "Interregional tax competition and intraregional political competition: The optimal provision of public goods under representative democracy," Journal of Urban Economics, Elsevier, vol. 66(3), pages 210-217, November.
  5. Marius Brülhart & Mario Jametti, 2004. "Vertical Versus Horizontal Tax Externalities: An Empirical Test," Department of Economics Working Papers 2004-14, McMaster University.
  6. Makris, Miltiadis, 2006. "Capital tax competition under a common currency," Journal of Urban Economics, Elsevier, vol. 59(1), pages 54-74, January.
  7. Karkalakos, Sotiris & Makris, Miltiadis, 2008. "Capital Tax Competition in the European Union: Theory and Evidence from Two Natural Experiments," MPRA Paper 21437, University Library of Munich, Germany, revised 2010.
  8. Thomas Moutos & William Scarth, 2003. "Some Macroeconomic Consequences of Basic Income and Employment Subsidies," CESifo Working Paper Series 916, CESifo Group Munich.
  9. Johannes Becker & Clemens Fuest, 2009. "EU Regional Policy and Tax Competition," Working Papers 0902, Oxford University Centre for Business Taxation.
  10. Susana Peralta, 2007. "Political Support for Tax Decentralization," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(6), pages 1013-1030, December.
  11. Wolf Wagner & Sylvester Eijffinger, 2008. "Efficiency of capital taxation in an open economy: tax competition versus tax exportation," International Tax and Public Finance, Springer, vol. 15(6), pages 637-646, December.
  12. Kessler, Anke S. & Lulfesmann, Christoph, 2005. "Tiebout and redistribution in a model of residential and political choice," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 501-528, February.
  13. Lisa Grazzini & Alessandro Petretto, 2007. "Tax Competition between Unitary and Federal Countries," Economics of Governance, Springer, vol. 8(1), pages 17-36, January.
  14. Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125, CPB Netherlands Bureau for Economic Policy Analysis.
  15. Kangoh Lee, 2012. "Why is mobile capital taxed?," Journal of Economics, Springer, vol. 107(2), pages 157-181, October.

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