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Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply

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  • Marco Runkel

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Thomas Eichner

    ()
    (Department of Economics, University of Hagen)

Abstract

This paper points to the important role which the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of policymaking in a decentralized economy with mobile capital and spillovers among jurisdictions. In accordance with previous studies, we show that under the assumption of a fixed capital supply (zero capital supply elasticity) the decentralized policy choice is optimal. If the capital supply elasticity is strictly positive, however, capital tax rates are inefficiently low in the decentralized equilibrium.

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File URL: http://www.fww.ovgu.de/fww_media/femm/femm_2010/2010_19.pdf
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Bibliographic Info

Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 100019.

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Length: 10 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:mag:wpaper:100019

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Keywords: decentralized policymaking; spillovers; capital supply elasticity;

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References

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  1. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  2. Gylfason, T., 1993. "Optimal Saving, Interest Rates and Endogenous Growth," Papers, Stockholm - International Economic Studies 539, Stockholm - International Economic Studies.
  3. Beck, John H., 1983. "Tax competition, uniform assessment, and the benefit principle," Journal of Urban Economics, Elsevier, vol. 13(2), pages 127-146, March.
  4. Hikaru Ogawa & David Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2007-06, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  5. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, Elsevier, vol. 35(3), pages 333-354, April.
  6. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(2), pages S3-27, April.
  7. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, Elsevier, vol. 88(6), pages 1065-1091, June.
  8. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 363-370, March.
  9. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, National Bureau of Economic Research, Inc, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
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Cited by:
  1. Gregor Schwerhoff & Ottmar Edenhofer, 2013. "Is Capital Mobility Good for Public Good Provision?," CESifo Working Paper Series, CESifo Group Munich 4420, CESifo Group Munich.
  2. Harrison Fell & Daniel T. Kaffine, 2013. "Think locally, act locally: Can decentralized planning really achieve first-best in the presence of environmental spillovers?," Working Papers, Colorado School of Mines, Division of Economics and Business 2013-07, Colorado School of Mines, Division of Economics and Business.
  3. Pi, Jiancai & Zhou, Yu, 2014. "Tax competition in federations revisited," Economics Letters, Elsevier, Elsevier, vol. 123(1), pages 104-107.
  4. Gregor Schwerhoff & Ottmar Edenhofer, 2014. "The Globalization Paradox Revisited," CESifo Working Paper Series, CESifo Group Munich 4878, CESifo Group Munich.
  5. Thomas Eichner & Rüdiger Pethig, 2013. "Self-enforcing environmental agreements and capital mobility," Volkswirtschaftliche Diskussionsbeiträge, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht 162-13, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.

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