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The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions

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  • Eckhard Janeba
  • Guttorm Schjelderup

Abstract

The views on the welfare effects of tax competition differ widely. Some see the fiscal externalities as the cause for underprovision of public goods, while others see tax competition as the means of reducing government inefficiencies. Using a comparative politics approach we show that tax competition among presidential-congressional democracies is typically welfare improving, while harmful among parliamentary democracies if under the latter public goods are sufficiently valued. The results hold when politicians seek re-election because of exogenous benefits of holding office. By contrast, when politicians hold office only to extract rents, tax competition is harmful if politicians are sufficiently patient. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • Eckhard Janeba & Guttorm Schjelderup, 2009. "The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions," Economic Journal, Royal Economic Society, vol. 119(539), pages 1143-1161, July.
    • Handle: RePEc:ecj:econjl:v:119:y:2009:i:539:p:1143-1161
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    Cited by:

    1. Tobias Hauck, 2019. "Lobbying and the international fight against tax havens," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(3), pages 537-557, June.
    2. Osterloh, Steffen & Debus, Marc, 2009. "Partisan politics in corporate tax competition," ZEW Discussion Papers 09-078, ZEW - Leibniz Centre for European Economic Research.
    3. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working papers of CATT hal-02939340, HAL.
    4. John D. Wilson, 2015. "Tax Havens in a World of Competing Countries," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(4), pages 32-29, 01.
    5. Eichner, Thomas & Runkel, Marco, 2011. "Corporate income taxation of multinationals in a general equilibrium model," Journal of Public Economics, Elsevier, vol. 95(7), pages 723-733.
    6. John D. Wilson, 2015. "Tax Havens in a World of Competing Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(4), pages 32-39, 01.
    7. Osterloh, Steffen & Debus, Marc, 2012. "Partisan politics in corporate taxation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 192-207.
    8. repec:ces:ifodic:v:12:y:2015:i:4:p:19149988 is not listed on IDEAS
    9. Janeba, Eckhard & Osterloh, Steffen, 2013. "Tax and the city — A theory of local tax competition," Journal of Public Economics, Elsevier, vol. 106(C), pages 89-100.
    10. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers hal-02939340, HAL.
    11. Florence TOUYA, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers 2015-2016_12, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    12. Shafik Hebous, 2014. "Money at the Docks of Tax Havens: A Guide," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 458-485, September.
    13. 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.
    14. Neumann, Rebecca & Holman, Jill & Alm, James, 2009. "Globalization and tax policy," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 193-211, August.
    15. John D. Wilson, 2015. "Tax Havens in a World of Competing Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(04), pages 32-39, January.
    16. Florence TOUYA, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers 2015-2016_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    17. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers hal-02939399, HAL.

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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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