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Tax competition and revelation of preferences for public expenditure

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  • BUCOVETSKY, Sam
  • MARCHAND, Maurice
  • PESTIEAU, Pierre

Abstract

This paper considers a federal country composed of local jurisdictions which differ in their taste for public goods and finance public spending by a source-based tax on capital income. The taste for public goods is private information of jurisdictions. By transferring differential grants to jurisdictions the central government aims at both reducing the misallocation of capital due to the diverging jurisdictional tax rates on capital income and getting closer to the optimal balance between private and public consumption in every jurisdiction. The purpose of the paper is to characterize the optimal grant policy of the central government. It is shown that there persist at the optimum both some misallocation of capital and some violation of the Samuelson rule in every jurisdiction.
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Suggested Citation

  • BUCOVETSKY, Sam & MARCHAND, Maurice & PESTIEAU, Pierre, 1998. "Tax competition and revelation of preferences for public expenditure," LIDAM Reprints CORE 1352, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1352
    DOI: 10.1006/juec.1997.2075
    Note: In : Journal of Urban Economics, 44, 367-390, 1998
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    References listed on IDEAS

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    1. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, vol. 55(1), pages 53-70, September.
    2. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-1075, December.
    3. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, vol. 91(3), pages 709-723, June.
    4. LOPEZ, Salvador & MARCHAND, Maurice & PESTIEAU, Pierre, 1996. "A Simple Two-Country Model of Redistributive Capital Income Taxation," LIDAM Discussion Papers CORE 1996025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-774, September.
    6. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
    7. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
    8. 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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