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Redistribution, Fiscal Competition, and the Politics of Economic Integration

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Abstract

The paper examines the redistributive consequences of the economic integration of factor markets. We consider two countries that redistribute income among their residents. The social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants. If either capital or labour is internationally mobile, the countries engage in fiscal competiton, i.e., the partial integration of capital or labour markets is detrimental to the countries' redistributive ability. A move from partial to full integration, however, may alleviate rather than intensify fiscal competition, particularly, if the two countries face sufficiently similar economic and political conditions. In such a situation, increased integration of labour markets will soften the incentives compete for mobile capital. As a result, there is more redistribution in equilibrium and a majority of the population in each country is strictly better off.

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File URL: http://www.sfu.ca/econ-research/RePEc/sfu/sfudps/dp00-11.pdf
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Bibliographic Info

Paper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp00-11.

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Length: 35 pages
Date of creation: Jan 2000
Date of revision: Feb 2000
Handle: RePEc:sfu:sfudps:dp00-11

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Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
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Web page: http://www.sfu.ca/economics.html
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Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
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  1. Bolton, Patrick & Roland, Gérard, 1995. "The Break up of Nations: A Political Economy Analysis," CEPR Discussion Papers 1225, C.E.P.R. Discussion Papers.
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  6. Burbidge, John B. & Myers, Gordon M., 1994. "Population mobility and capital tax competition," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 441-459, August.
  7. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
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  12. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March.
  13. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
  14. Keen, Michael, 1987. "Welfare effects of commodity tax harmonisation," Journal of Public Economics, Elsevier, vol. 33(1), pages 107-114, June.
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  16. Myers, Gordon M., 1990. "Optimality, free mobility, and the regional authority in a federation," Journal of Public Economics, Elsevier, vol. 43(1), pages 107-121, October.
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  18. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  19. repec:fth:coluec:595 is not listed on IDEAS
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Citations

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Cited by:
  1. Kangoh Lee, 2012. "Why is mobile capital taxed?," Journal of Economics, Springer, vol. 107(2), pages 157-181, October.
  2. Haufler, Andreas & Lülfesmann, Christoph, 2012. "Reforming an Asymmetric Union: On the Virtues of Dual Tier Capital Taxation," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62082, Verein für Socialpolitik / German Economic Association.
  3. Marius Brülhart & Mario Jametti, 2004. "Vertical Versus Horizontal Tax Externalities: An Empirical Test," Department of Economics Working Papers 2004-14, McMaster University.
  4. Lockwood, Ben & Makris, Miltiadis, 2004. "Tax Incidence, Majority Voting And Capital Market Integration," The Warwick Economics Research Paper Series (TWERPS) 712, University of Warwick, Department of Economics.
  5. Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125, CPB Netherlands Bureau for Economic Policy Analysis.
  6. PERALTA, Susana, 2004. "Political support for tax decentralisation," CORE Discussion Papers 2004024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Johannes Becker & Clemens Fuest, 2009. "EU Regional Policy and Tax Competition," Working Papers 0902, Oxford University Centre for Business Taxation.
  8. Makris, Miltiadis, 2006. "Capital tax competition under a common currency," Journal of Urban Economics, Elsevier, vol. 59(1), pages 54-74, January.
  9. 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.
  10. Kessler, Anke S. & Lulfesmann, Christoph, 2005. "Tiebout and redistribution in a model of residential and political choice," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 501-528, February.
  11. Thomas Moutos & William Scarth, 2003. "Some Macroeconomic Consequences of Basic Income and Employment Subsidies," CESifo Working Paper Series 916, CESifo Group Munich.
  12. Ihori, Toshihiro & Yang, C.C., 2009. "Interregional tax competition and intraregional political competition: The optimal provision of public goods under representative democracy," Journal of Urban Economics, Elsevier, vol. 66(3), pages 210-217, November.
  13. Lisa Grazzini & Alessandro Petretto, 2007. "Tax Competition between Unitary and Federal Countries," Economics of Governance, Springer, vol. 8(1), pages 17-36, January.
  14. Wolf Wagner & Sylvester Eijffinger, 2008. "Efficiency of capital taxation in an open economy: tax competition versus tax exportation," International Tax and Public Finance, Springer, vol. 15(6), pages 637-646, December.
  15. Karkalakos, Sotiris & Makris, Miltiadis, 2008. "Capital Tax Competition in the European Union: Theory and Evidence from Two Natural Experiments," MPRA Paper 21437, University Library of Munich, Germany, revised 2010.

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