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Economic Growth and Tax-Competing Leviathans

  • Michael Rauscher
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    Is tax competition good for economic growth? The paper addresses this question by means of a simple model of economic growth in which a wasteful Leviathan state sets taxes and provides productive input. Wasteful behaviour is restricted by the voter, who reduces political support if her income is reduced. The intensity of tax competition is modelled via variation of a parameter measuring the mobility of the tax base. It is shown that the effects of increased mobility of the tax base on economic growth are ambiguous and that the elasticity of intertemporal substitution, which in this model equals the rate of intratemporal substitution between the government's own consumption and its political support, is a decisive variable in this context.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-02/cesifo1_wp1140.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1140.

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    Date of creation: 2004
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    Handle: RePEc:ces:ceswps:_1140
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    1. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Journal of Public Economics, Elsevier, vol. 66(2), pages 247-274, November.
    2. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-62, December.
    3. Lansing, Kevin J., 1999. "Optimal redistributive capital taxation in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 73(3), pages 423-453, September.
    4. Brennan,Geoffrey & Buchanan,James M., 1980. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521233293.
    5. Arjan Lejour & Harrie Verbon, 1997. "Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model," International Tax and Public Finance, Springer, vol. 4(4), pages 485-497, November.
    6. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    7. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
    8. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
    9. Judd, Kenneth L., 1999. "Optimal taxation and spending in general competitive growth models," Journal of Public Economics, Elsevier, vol. 71(1), pages 1-26, January.
    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. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
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