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Trade, Capital Mobility, and Tax Competition

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  • Wilson, John Douglas

Abstract

This paper examines a system of governments that finance public expenditures with taxes on mobile capital. Unlike previous research on "tax competition," expli cit consideration is given to the general-equilibrium determination o f the prices at which goods are traded between regions. The analysis identifies inefficiencies in government behavior that are not apparen t in models in which the terms of trade are exogenously given. Capita l taxation is shown to create an inefficient distribution of public-g ood outputs across regions, accompanied by an inefficient pattern of trade. A model is presented in which the chosen levels of public-good outputs differ across regions containing identical residents and pro duction possibilities. Copyright 1987 by University of Chicago Press.

Suggested Citation

  • Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-856, August.
  • Handle: RePEc:ucp:jpolec:v:95:y:1987:i:4:p:835-56
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