Tax Competition and Tax Harmonisation in an Urban Context
AbstractIt is a standard prediction in the literature on tax competition that mobility of factors between jurisdictions causes local governments to choose too low tax rates and to underprovide public goods. This paper shows circumstances when the prediction may be false. The prediction may be false when workers live in one jurisdiction and commute to work in another. We show that in an urban setting land developers will make inefficient choices of both tax rates and public expenditures. Whether these are too high or too low from a social point of view is ambiguous. The only unambiguous prediction is that the non-cooperative payroll tax is inefficiently low. In our framework, the locational inefficiency is twofold, both residents and workers are inefficiently allocated across communities in equilibrium. We also show that tax harmonisation and/or voluntary inter-community transfers are not effective in restoring efficiency.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 999.
Length: 34 pages
Date of creation: Sep 2001
Date of revision:
Urban; Tax Competition; Tax Harmonisation; Public Goods; Property Tax; Payroll Tax;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H79 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other
- R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
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