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Tax competition and equalization: the impact of voluntary cooperation on the efficiency goal

  • Petra Ens


    (Georg-August-Universität Göttingen)

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    Literature has long learned about the welfare improving effect of equalization in tax competition environments. By setting incentives to local authorities, public spending becomes efficient in spite of relying on a mobile resource as the tax base. This paper proves that this result cannot hold when local players have influence on the shape of the transfer system. A bargaining concerning equalization may change the incentives arising from equalization.

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    Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/16.

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    Length: 39 pages
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:ieb:wpaper:2009/10/doc2009-16
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    8. Caputo, Michael R., 1996. "The Envelope Theorem and Comparative Statics of Nash Equilibria," Games and Economic Behavior, Elsevier, vol. 13(2), pages 201-224, April.
    9. 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.
    10. Johnson, William R, 1988. "Income Redistribution in a Federal System," American Economic Review, American Economic Association, vol. 78(3), pages 570-73, June.
    11. Sotiris Karkalakos & Christos Kotsogiannis, 2007. "A spatial analysis of provincial corporate income tax responses: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 40(3), pages 782-811, August.
    12. Bev Dahlby & Neil Warren, 2003. "Fiscal Incentive Effects of the Australian Equalisation System," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 434-445, December.
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