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Decentralization and international tax competition

  • Wilson, John Douglas
  • Janeba, Eckhard

This paper models tax competition between two countries that are divided into regions. In the first stage of the game, the strategy variable for each country is the division of the provision of a continuum of public goods between the central and regional governments. In the second stage, the central and regional governments choose their tax rates on capital. A country’s decentralization level serves as a strategic tool through its influence on the mix of horizontal and vertical externalities that exist under tax competition. In contrast to standard tax competition models, decentralizing the provision of public goods may be welfare-enhancing.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 89 (2005)
Issue (Month): 7 (July)
Pages: 1211-1229

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Handle: RePEc:eee:pubeco:v:89:y:2005:i:7:p:1211-1229
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Lockwood, Ben, 1997. "Inter-Regional Insurance," Discussion Papers 9703, Exeter University, Department of Economics.
  2. Arzaghi, Mohammad & Henderson, J. Vernon, 2005. "Why countries are fiscally decentralizing," Journal of Public Economics, Elsevier, vol. 89(7), pages 1157-1189, July.
  3. Horst Raff & John Wilson, 1997. "Income Redistribution with Well-Informed Local Governments," International Tax and Public Finance, Springer, vol. 4(4), pages 407-427, November.
  4. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  5. Timothy Besley & Stephen Coate, 1999. "Centralized versus Decentralized Provision of Local Public Goods: A Political Economy Analysis," NBER Working Papers 7084, National Bureau of Economic Research, Inc.
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  7. Bucovetsky, S. & Marchand, M. & Pestieau, P., 1998. "Tax Competition and Revelation of Preferences for Public Expenditure," Journal of Urban Economics, Elsevier, vol. 44(3), pages 367-390, November.
  8. Jan K. Brueckner & Luz A. Saavedra, 2000. "Do Local Governments Engage in Strategic Property-Tax Competition?," Econometric Society World Congress 2000 Contributed Papers 0357, Econometric Society.
  9. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
  10. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
  11. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 689-701, October.
  12. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  13. Wilson, John Douglas, 2005. "Welfare-improving competition for mobile capital," Journal of Urban Economics, Elsevier, vol. 57(1), pages 1-18, January.
  14. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  15. DePeter James A. & Myers Gordon M., 1994. "Strategic Capital Tax Competition: A Pecuniary Externality and a Corrective Device," Journal of Urban Economics, Elsevier, vol. 36(1), pages 66-78, July.
  16. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
  17. WILDASIN, David E., . "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," CORE Discussion Papers RP -831, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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