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Income vs. property tax competition: A normative comparison

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  • Kuhlmey, Florian

    () (University of Basel)

Abstract

Income and property taxation are among the most prevalent policy instruments to finance local expenditure in countries with a high degree of decentralization. However, little is known about their relative efficiency and redistributive properties. This paper compares both tax instruments within the same framework and investigates their relative attractiveness to finance local expenditure. It further allows for inter-municipal spillovers and rivalry in the consumption of the publicly provided good. The analytical model identifies the different inefficiencies in both tax regimes which include intra- and inter-municipal free-riding. In a numerical illustration, the model is solved for the resulting equilibria. This allows to quantify the gross welfare loss from decentralization and also reveals a decomposition of the welfare loss into its components.

Suggested Citation

  • Kuhlmey, Florian, 2017. "Income vs. property tax competition: A normative comparison," Working papers 2017/18, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2017/18
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    File URL: https://edoc.unibas.ch/61300/1/20180306100031_5a9e58afaca2b.pdf
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    References listed on IDEAS

    as
    1. Stephen M. Calabrese & Dennis N. Epple & Richard E. Romano, 2012. "Inefficiencies from Metropolitan Political and Fiscal Decentralization: Failures of Tiebout Competition," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1081-1111.
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    Keywords

    Tax competition; normative analysis; income taxation; property taxation; segregation; decentralization; welfare decomposition.;

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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