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Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model

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  • Arjan Lejour
  • Harrie Verbon

Abstract

This paper examines the effects of policy coordinationin a two-country world with endogenous growth and imperfect capitalmobility. Redistribution is financed by a source-based capital-incometax. Comparing the cases in which countries do and do not coordinatetheir fiscal policies, it is shown that redistribution can beinefficiently high if fiscal policies are not coordinated. Thisis because the negative effects of fiscal policy on home savingsaffect economic growth abroad by inducing a decline in foreigninvestment. This externality can dominate the well-known tax-baseexternality. Copyright Kluwer Academic Publishers 1997

Suggested Citation

  • Arjan Lejour & Harrie Verbon, 1997. "Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 485-497, November.
    • Handle: RePEc:kap:itaxpf:v:4:y:1997:i:4:p:485-497
    DOI: 10.1023/A:1008613015303
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