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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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File URL: http://hdl.handle.net/10.1023/A:1008613015303
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Article provided by Springer & International Institute of Public Finance 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
DOI: 10.1023/A:1008613015303
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  1. 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).
  2. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  3. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  4. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  5. Gordon, R.H. & Bovenberg, A.L., 1994. "Why Is Capital So Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," Working Papers 358, Research Seminar in International Economics, University of Michigan.
  6. 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.
  7. 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.
  8. 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.
  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. 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.
  11. Arjan Lejour & Harrie Verbon, 1996. "Capital mobility, wage bargaining, and social insurance policies in an economic union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(4), pages 495-513, October.
  12. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  13. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  14. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 755-776.
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