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Tax Competition, Public Good Provision, and Income Redistribution: The Case of Linear Capital Income Tax

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Author Info
Toshihiro Ihori (Faculty of Economics, University of Tokyo)
C.C. Yang (Institute of Economics, Academia Sinica and Department of Public Finance, National Chengchi University)
Abstract

This paper considers a tax competition model in which regional government activities include income redistribution as well as public good provision. To incorporate the regional government function of income redistribution, we extend the tax system from the stylized proportional capital income tax to the linear capital income tax: the revenue collected from capital taxation in each region is used not only to provide the regional public good but also to offer a uniform lump-sum grant to each individual in the region. In contrast to Hoyt's (1991) finding that the extent to which public goods are undersupplied is monotonically increasing in the number of competing regions, we show that, regardless of the number of competing regions, all heterogeneous individuals concur with each other on the first-best provision of public goods; on the other hand, the size of income redistribution is monotonically decreasing in the number of competing regions.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-595.

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Length: 19pages
Date of creation: Oct 2008
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Handle: RePEc:tky:fseres:2008cf595

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  1. Hoyt, William H., 1991. "Property taxation, Nash equilibrium, and market power," Journal of Urban Economics, Elsevier, vol. 30(1), pages 123-131, July. [Downloadable!] (restricted)
  2. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  5. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1039-1073, August. [Downloadable!] (restricted)
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  6. Davies, James B. & Shorrocks, Anthony F., 2000. "The distribution of wealth," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 11, pages 605-675 Elsevier. [Downloadable!] (restricted)
  7. Zax, Jeffrey S, 1989. "Is There a Leviathan in Your Neighborhood?," American Economic Review, American Economic Association, vol. 79(3), pages 560-67, June. [Downloadable!] (restricted)
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  11. 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. [Downloadable!] (restricted)
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  13. Ballard, Charles L, 1988. "The Marginal Efficiency Cost of Redistribution," American Economic Review, American Economic Association, vol. 78(5), pages 1019-33, December. [Downloadable!] (restricted)
  14. Nelson, Michael A, 1987. "Searching for Leviathan: Comment and Extension," American Economic Review, American Economic Association, vol. 77(1), pages 198-204, March. [Downloadable!] (restricted)
  15. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March. [Downloadable!] (restricted)
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