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Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply

Author

Listed:
  • 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.

Suggested Citation

  • Marco Runkel & Thomas Eichner, 2010. "Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply," FEMM Working Papers 100019, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:100019
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    decentralized policymaking; spillovers; capital supply elasticity;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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