A Model of Tradeable Capital Tax Permits
AbstractStandard models of horizontal strategic capital tax competition predict that, in a Nash equilibrium, tax rates are inefficiently low due to externalities - capital infl ow to one state corresponds to capital out ow for another state. Researchers often suggest that the federal government impose Pigouvian taxes to correct for these effects and achieve efficiency. We propose an alternative incentive-based regulation: tradeable capital tax permits. Under this system, the federal government would require a state to hold a permit if it wanted to reduce its capital income tax rate from some pre-determined benchmark. These permits would be tradeable across states. We show that, if the federal government sets the correct number of total permits, then social efficiency is achieved. We discuss the advantages of this system relative to the canonical suggestion of Pigouvian taxes.
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Bibliographic InfoPaper provided by College of the Holy Cross, Department of Economics in its series Working Papers with number 1202.
Length: 29 pages
Date of creation: Sep 2012
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More information through EDIRC
tax competition; marketable permits; asymmetric states;
Find related papers by JEL classification:
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-09-16 (Accounting & Auditing)
- NEP-ALL-2012-09-16 (All new papers)
- NEP-ENV-2012-09-16 (Environmental Economics)
- NEP-PBE-2012-09-16 (Public Economics)
- NEP-PUB-2012-09-16 (Public Finance)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Do we want to curtail internal tax competition?
by Economic Logician in Economic Logic on 2012-09-27 14:10:00
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