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Fiscal competition in space and time: An endogenous-growth approach

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  • Becker, Daniel Thomas
  • Rauscher, Michael

Abstract

Is tax competition good for economic growth? The paper addresses this question by means of a simple model of endogenous growth. There are many small jurisdictions in a large federation and individual governments benevolently maximise the welfare of immobile residents. Investment is costly: Quadratic installation and de-installation costs limit the mobility of capital. The paper looks at optimal taxation and long-run growth. In particular, the effects of variations in the cost parameter on economic growth and taxation are considered. It is shown that balanced endogenous growth paths do not always exist, that, if they exist, the economic growth rate is positively related to the mobility of capital, that the impact of the mobility prameter on the tax rate is ambiguous and that the tax rate may go to zero even if mobility costs are strictly positive. --

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Bibliographic Info

Paper provided by University of Rostock, Institute of Economics in its series Thuenen-Series of Applied Economic Theory with number 74.

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Date of creation: 2007
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Handle: RePEc:zbw:roswps:74

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Keywords: Fiscal Federalism; Tax Competition; Endogenous Growth;

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References

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  1. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  2. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  3. Arjan Lejour & Harrie Verbon, 1997. "Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model," International Tax and Public Finance, Springer, vol. 4(4), pages 485-497, November.
  4. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
  5. Guvenen, Fatih, 2006. "Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1451-1472, October.
  6. Brueckner, Jan K., 2006. "Fiscal federalism and economic growth," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2107-2120, November.
  7. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  8. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  9. Rebelo, Sergio, 1991. "Growth in open economies," Policy Research Working Paper Series 799, The World Bank.
  10. Turnovsky, Stephen J., 1996. "Fiscal policy, growth, and macroeconomic performance in a small open economy," Journal of International Economics, Elsevier, vol. 40(1-2), pages 41-66, February.
  11. Michael Rauscher, 2005. "Economic Growth and Tax-Competing Leviathans," International Tax and Public Finance, Springer, vol. 12(4), pages 457-474, August.
  12. David E. Wildasin, 2000. "Fiscal Competition in Space and Time," CESifo Working Paper Series 370, CESifo Group Munich.
  13. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
  14. Assaf Razin & Chi-Wa Yuen, 1999. "Optimal International Taxation and Growth Rate Convergence: Tax Competition vs. Coordination," International Tax and Public Finance, Springer, vol. 6(1), pages 61-78, February.
  15. Turnovsky, Stephen J., 1997. "Fiscal Policy In A Growing Economy With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 1(03), pages 615-639, September.
  16. Judd, Kenneth L., 1999. "Optimal taxation and spending in general competitive growth models," Journal of Public Economics, Elsevier, vol. 71(1), pages 1-26, January.
  17. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  18. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
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Citations

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Cited by:
  1. Hashimzade, Nigar & Myles, Gareth D., 2010. "Growth And Public Infrastructure," Macroeconomic Dynamics, Cambridge University Press, vol. 14(S2), pages 258-274, November.
  2. Maria Bas & Ivan Ledezma, 2007. "Market Access and the Evolution of within Plant Productivity in Chile," CESifo Working Paper Series 2077, CESifo Group Munich.
  3. Becker, Daniel Thomas, 2008. "Dynamic tax competition and public-sector modernisation," Thuenen-Series of Applied Economic Theory 56, University of Rostock, Institute of Economics.
  4. Wildasin, David, 2009. "Fiscal Competition for Imperfectly-Mobile Labor and Capital: A Comparative Dynamic Analysis," IZA Discussion Papers 4463, Institute for the Study of Labor (IZA).

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