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Vertical transfers and tax competition: does trade integration matter?

Author

Listed:
  • Thierry Madiès

  • Emmanuelle Taugourdeau

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

Abstract

Our paper presents a model of decentralized leadership with fiscal equalization and imperfect trade liberalization. The degree of trade integration (reflected by trade costs) turns out to have an effect on both state corporate taxes and ex-post vertical equalization transfers. Our main results are the following: when public goods are highly valued by the citizens of the federation, ex post equalization transfers are welfare enhancing compared to tax competition, whatever the degree of trade integration. However, when citizens do not have strong preferences for the public good, ex post vertical transfers turn out to be welfare deterioring for low levels of trade integration while they are welfare improving compared to tax competition when trade integration is sufficiently deep.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Thierry Madiès & Emmanuelle Taugourdeau, 2020. "Vertical transfers and tax competition: does trade integration matter?," Post-Print hal-03011409, HAL.
    • Handle: RePEc:hal:journl:hal-03011409
    DOI: 10.1007/s00355-020-01251-5
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