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When Trade Leads to Inefficient Public Good Provision: a Tax competition model

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  • Emmanuelle Taugourdeau

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Abderrahmane Ziad

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper analyses the tax competition mechanisms in a context of commodity trade. We show that the trade market equilibrium may restore the efficiency of the public good provision when agents from different countries have symmetric preferences. Asymmetry in preferences implies over or underprovision in public goods depending on the degree of asymmetry between countries. In both cases, the price adjustment leaves the capital stock unchanged so that the stock of capital is not affected by the taxes. Finally, we show that the centralized choice does not systematically restore the efficiency of the public good provision.

Suggested Citation

  • Emmanuelle Taugourdeau & Abderrahmane Ziad, 2015. "When Trade Leads to Inefficient Public Good Provision: a Tax competition model," Post-Print hal-01159532, HAL.
    • Handle: RePEc:hal:journl:hal-01159532
    Note: View the original document on HAL open archive server: https://hal.science/hal-01159532
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    References listed on IDEAS

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    1. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    2. Becker, Johannes & Runkel, Marco, 2012. "Even small trade costs restore efficiency in tax competition," Journal of Urban Economics, Elsevier, vol. 72(2), pages 191-195.
    3. Roberto Cardarelli & Emmanuelle Taugourdeau & Jean‐Pierre Vidal, 2002. "A Repeated Interactions Model of Tax Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 19-38, January.
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    More about this item

    Keywords

    tax competition; Nash equilibrium; interregional trade; commerce interrégional; équilibre de Nash; concurrence fiscale;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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