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

  • Arjan Lejour


  • Harrie Verbon


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

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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 4 (1997)
Issue (Month): 4 (November)
Pages: 485-497

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Handle: RePEc:kap:itaxpf:v:4:y:1997:i:4:p:485-497
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  1. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  2. Gordon, R.H. & Bovenberg, A.L., 1994. "Why is capital so immobile internationally? : Possible explanations and implications for capital income taxation," Discussion Paper 1994-63, Tilburg University, Center for Economic Research.
  3. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  4. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
  5. Bovenberg, A.L. & Gordon, R.H., 1996. "Why is capital so immobile internationally? Possible explanation and implications for capital income taxation," Other publications TiSEM 6a131c21-fd9a-4d83-8d9a-7, Tilburg University, School of Economics and Management.
  6. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  7. Assaf Razin & Chi-Wa Yuen, 1992. "Convergence in Growth Rates: The Role of Capital Mobility and International Taxation," NBER Working Papers 4214, National Bureau of Economic Research, Inc.
  8. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  9. Lejour, A.M., 1995. "Cooperative and competitive policies in the EU : The European Siamese twin?," Discussion Paper 1995-20, Tilburg University, Center for Economic Research.
  10. Arjan Lejour & Harrie Verbon, 1996. "Capital mobility, wage bargaining, and social insurance policies in an economic union," International Tax and Public Finance, Springer, vol. 3(4), pages 495-513, October.
  11. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  12. Devereux, Michael B & Mansoorian, Arman, 1992. "International Fiscal Policy Coordination and Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 249-68, May.
  13. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
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