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Tax Competition and International Public Goods

Author

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  • Kjetil Bjorvatn

    ()

  • Guttorm Schjelderup

    ()

Abstract

A well known result in the tax competition literature is that tax rates are set too low in the Nash equilibrium to finance an efficient level of public consumption goods. In this model we introduce international spillovers in public goods provision and show that such spillovers reduce, and in the limiting case of perfect spillovers, eliminate tax competition. There is, however, always underprovision of the public good in equilibrium, since larger spillovers increase the problem of free riding. In an extension to the model, we demonstrate that congestion costs may result in overprovision of the public good. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Kjetil Bjorvatn & Guttorm Schjelderup, 2002. "Tax Competition and International Public Goods," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(2), pages 111-120, March.
  • Handle: RePEc:kap:itaxpf:v:9:y:2002:i:2:p:111-120
    DOI: 10.1023/A:1014600502655
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    References listed on IDEAS

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    1. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
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    More about this item

    Keywords

    tax competition for capital; international public goods;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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