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Economic Growth and Tax-Competing Leviathans

  • Michael Rauscher

    ()

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

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File URL: http://hdl.handle.net/10.1007/s10797-005-1834-4
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 12 (2005)
Issue (Month): 4 (August)
Pages: 457-474

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Handle: RePEc:kap:itaxpf:v:12:y:2005:i:4:p:457-474
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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  1. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  2. 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.
  3. Kevin J. Lansing, 1998. "Optimal redistributive capital taxation in a neoclassical growth model," Working Papers in Applied Economic Theory 99-01, Federal Reserve Bank of San Francisco.
  4. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Journal of Public Economics, Elsevier, vol. 66(2), pages 247-274, November.
  5. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
  6. Poul Schou, 2000. "Polluting Non-Renewable Resources and Growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(2), pages 211-227, June.
  7. Elbasha, Elamin H. & Roe, Terry L., 1996. "On Endogenous Growth: The Implications of Environmental Externalities," Journal of Environmental Economics and Management, Elsevier, vol. 31(2), pages 240-268, September.
  8. 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.
  9. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  10. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
  11. Wilson, John Douglas, 2005. "Welfare-improving competition for mobile capital," Journal of Urban Economics, Elsevier, vol. 57(1), pages 1-18, January.
  12. Michael Rauscher, 2000. "Interjurisdictional Competition and Public-Sector Prodigality: The Triumph of the Market over the State?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 89-, September.
  13. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
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