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Fiscal Competition, Capital-Skill Complementarity, and the Composition of Public Spending

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  • Rainald Borck

Abstract

Following Keen and Marchand (1997), the paper analyzes the effect of fiscal competition on the composition of public spending in a model where capital and skilled workers are mobile while low-skilled workers are immobile. Taxes are levied on capital and labor. Each group of workers benefits from a different kind of public good. Mobility of skilled workers provides an incentive for jurisdictions to spend too much on public goods benefiting the skilled and too little on those benefiting low-skilled workers. In the case of capital-skill complementarity, this incentive is strengthened. The analysis is then extended to allow for mobility of unskilled labor.

Suggested Citation

  • Rainald Borck, 2006. "Fiscal Competition, Capital-Skill Complementarity, and the Composition of Public Spending," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(4), pages 488-499, February.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200602)61:4_488:fcccat_2.0.tx_2-n
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Borck, Rainald & Fossen, Frank M. & Freier, Ronny & Martin, Thorsten, 2015. "Race to the debt trap? — Spatial econometric evidence on debt in German municipalities," Regional Science and Urban Economics, Elsevier, pages 20-37.
    2. Rainald Borck & Marco Caliendo & Viktor Steiner, 2007. "Fiscal Competition and the Composition of Public Spending: Theory and Evidence," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, pages 264-277.
    3. Thiess Buettner & Eckhard Janeba, 2016. "City competition for the creative class," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, pages 413-451.
    4. Andreas Kappeler & Albert Solé-Ollé & Andreas Stephan & Timo Välilä, 2012. "Does fiscal decentralization foster regional investment in productive infrastructure?," ERSA conference papers ersa12p60, European Regional Science Association.
    5. Kappeler, Andreas & Solé-Ollé, Albert & Stephan, Andreas & Välilä, Timo, 2013. "Does fiscal decentralization foster regional investment in productive infrastructure?," European Journal of Political Economy, Elsevier, vol. 31(C), pages 15-25.
    6. Lenka GREGOROVA & Martin GREGOR, "undated". "Jurisdictional Competition via Spending Composition: The Case of the Czech Republic," Regional and Urban Modeling 284100016, EcoMod.
    7. Lenka Šťastná, 2009. "Spatial Interdependence of Local Public Expenditures: Selected Evidence from the Czech Republic," Working Papers IES 2009/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Mar 2009.
    8. Lenka Šťastná, 2009. "Spatial Interdependence of Local Public Expenditures: Selected Evidence from the Czech Republic," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 007-025, March.

    More about this item

    Keywords

    tax competition; capital-skill complementarity; public spending;

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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