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The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions

  • Janeba, Eckhard

    ()

    (Dept. of Economics, University of Mannheim)

  • Schjelderup, Guttorm

    ()

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

The views on the welfare effects of tax competition differ widely. Some see the fiscal externalities as the cause for underprovision of public goods, while others see tax competition as means to reduce government inefficiencies. Using a comparative politics approach we show that tax competition among presidential-congressional democracies is typically welfare improving, while harmful among parliamentary democracies if under the latter the marginal benefit of the public good is sufficiently high. The results hold when politicians seek re-election because of exogenous benefits of holding office. By contrast, when politicians hold office only to extract rents, tax competition is harmful if politicians are sufficiently patient.

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File URL: http://hdl.handle.net/11250/163954
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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2008/22.

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Length: 28 pages
Date of creation: 17 Oct 2008
Date of revision:
Handle: RePEc:hhs:nhhfms:2008_022
Contact details of provider: Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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  1. Persson, Torsten & Roland , Gérard & Tabellini, Guido, 1997. "Comparative Politics and Public Finance," Seminar Papers 633, Stockholm University, Institute for International Economic Studies.
  2. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 689-701, October.
  3. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  4. Besley, Timothy J. & Smart, Michael, 2002. "Does Tax Competition Raise Voter Welfare?," CEPR Discussion Papers 3131, C.E.P.R. Discussion Papers.
  5. Daniel Diermeier & Michael Keane & Antonio Merlo, 2004. "A Political Economy Model of Congressional Careers," Discussion Papers 1387, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Lorz, Jens Oliver, 1996. "Capital mobility, tax competition, and lobbying for redistributive capital taxation," Kiel Working Papers 779, Kiel Institute for the World Economy.
  7. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
  8. Eckhard Janeba & Guttorm Schjelderup, 2002. "Why Europe Should Love Tax Competition - and the U.S. Even More So," NBER Working Papers 9334, National Bureau of Economic Research, Inc.
  9. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  10. Rauscher, Michael, 1998. "Leviathan and Competition among Jurisdictions: The Case of Benefit Taxation," Journal of Urban Economics, Elsevier, vol. 44(1), pages 59-67, July.
  11. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
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