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The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions

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  • Janeba, Eckhard

    ()
    (Dept. of Economics, University of Mannheim)

  • Schjelderup, Guttorm

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

The views on the welfare effects of tax competition differ widely. Some see the fiscal externalities as the cause for underprovision of public goods, while others see tax competition as means to reduce government inefficiencies. Using a comparative politics approach we show that tax competition among presidential-congressional democracies is typically welfare improving, while harmful among parliamentary democracies if under the latter the marginal benefit of the public good is sufficiently high. The results hold when politicians seek re-election because of exogenous benefits of holding office. By contrast, when politicians hold office only to extract rents, tax competition is harmful if politicians are sufficiently patient.

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Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2008/22.

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Length: 28 pages
Date of creation: 17 Oct 2008
Date of revision:
Handle: RePEc:hhs:nhhfms:2008_022

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Keywords: Tax competition; welfare effects; comparative politics approach;

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  1. Rauscher, Michael, 1998. "Leviathan and Competition among Jurisdictions: The Case of Benefit Taxation," Journal of Urban Economics, Elsevier, vol. 44(1), pages 59-67, July.
  2. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  3. Torsten Persson & Gerard Roland & Guido Tabellini, . "Comparative Politics and Public Finance," Working Papers 114, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Lorz, Oliver, 1998. "Capital mobility, tax competition, and lobbying for redistributive capital taxation," European Journal of Political Economy, Elsevier, vol. 14(2), pages 265-279, May.
  5. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
  6. Besley, Timothy J. & Smart, Michael, 2002. "Does Tax Competition Raise Voter Welfare?," CEPR Discussion Papers 3131, C.E.P.R. Discussion Papers.
  7. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers W94/07, Institute for Fiscal Studies.
  8. 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.
  9. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  10. Eckhard Janeba & Guttorm Schjelderup, 2002. "Why Europe Should Love Tax Competition - and the U.S. Even More So," NBER Working Papers 9334, National Bureau of Economic Research, Inc.
  11. Daniel Diermeier & Michael Keane & Antonio Merlo, 2002. "A Political Economy Model of Congressional Careers," PIER Working Paper Archive 04-037, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Sep 2004.
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Cited by:
  1. Eichner, Thomas & Runkel, Marco, 2011. "Corporate income taxation of multinationals in a general equilibrium model," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 723-733, 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. Neumann, Rebecca & Holman, Jill & Alm, James, 2009. "Globalization and tax policy," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 193-211, August.
  4. Janeba, Eckhard & Osterloh, Steffen, 2013. "Tax and the city — A theory of local tax competition," Journal of Public Economics, Elsevier, vol. 106(C), pages 89-100.
  5. Osterloh, Steffen & Debus, Marc, 2012. "Partisan politics in corporate taxation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 192-207.
  6. Shafik Hebous, 2011. "Money at the Docks of Tax Havens: A Guide," CESifo Working Paper Series 3587, CESifo Group Munich.

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