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Economic Growth and Tax-Competing Leviathans

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  • Michael Rauscher

Abstract

Is tax competition good for economic growth? The paper addresses this question by means of a simple model of economic growth in which a wasteful Leviathan state sets taxes and provides a productive input. Wasteful behaviour is restricted by the voter, who reduces political support if her income is reduced. The intensity of tax competition is modelled via variation of a parameter measuring the mobility of the tax base. It is shown that the effects of increased mobility of the tax base on economic growth are ambiguous and that the elasticity of intertemporal substitution, which in this model equals the rate of intratemporal substitution between the government’s own consumption and its political support, is a decisive variable in this context. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Michael Rauscher, 2005. "Economic Growth and Tax-Competing Leviathans," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 457-474, August.
    • Handle: RePEc:kap:itaxpf:v:12:y:2005:i:4:p:457-474
    DOI: 10.1007/s10797-005-1834-4
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    References listed on IDEAS

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