The Effects of Tax Competition when Politicians Create Rents to Buy Political Support
We set up a probabilistic voting model to explore the hypothesis that tax competition improves public sector efficiency and social welfare. In the absence of tax base mobility, distortions in the political process induce vote-maximising politicians to create rents to public sector employees. Allowing tax base mobility may be welfare-enhancing up to a point, because the ensuing tax competition will reduce rents. However, if tax competition is carried too far, it will reduce welfare by causing an underprovision of public goods. Starting from an equilibrium where tax competition has eliminated all rents, a coordinated rise in capital taxation will always be welfare-improving. For plausible parameter values it will even be welfare-enhancing to carry tax coordination beyond the point where rents to public sector workers start to emerge.
|Date of creation:||Dec 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+45) 3532 4411
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk/epru/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Huizinga, H. & Nielsen, S.B., 1995.
"Capital Income and Profits Taxation with Foreign Ownership of Firms,"
9582, Tilburg - Center for Economic Research.
- Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February.
- Huizinga, H.P. & Nielsen, S.B., 1995. "Capital income and profits taxation with foreign ownership of firms," Discussion Paper 1995-82, Tilburg University, Center for Economic Research.
- Harry Huizinga & Soeren Bo Nielsen, . "Capital Income and Profits Taxation with Foreign Ownerwhip of Firms," EPRU Working Paper Series 95-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Huizinga, H.P. & Nielsen, S.B., 1997. "Capital income and profit taxation with foreign ownership of firms," Other publications TiSEM b4f6a916-7f7f-4fe1-9cf0-c, Tilburg University, School of Economics and Management.
- Konstantinos Angelopoulos & Apostolis Philippopoulos & Vanghelis Vassilatos, 2006. "Rent-Seeking Competition from State Coffers: A Calibrated DSGE Model of the Euro Area," CESifo Working Paper Series 1644, CESifo Group Munich.
- Michael Keen & Christos Kotsogiannis, 2003. "Leviathan and Capital Tax Competition in Federations," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 177-199, 04.
- Eggert, Wolfgang, 2001. "Capital tax competition with socially wasteful government consumption," European Journal of Political Economy, Elsevier, vol. 17(3), pages 517-529, September.
- Michael Rauscher, 2000. "Interjurisdictional Competition and Public-Sector Prodigality: The Triumph of the Market over the State?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 89-, September.
- Wilson, John Douglas, 2005. "Welfare-improving competition for mobile capital," Journal of Urban Economics, Elsevier, vol. 57(1), pages 1-18, January.
- Wildasin, David E., 1989.
"Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy,"
Journal of Urban Economics,
Elsevier, vol. 25(2), pages 193-212, March.
- WILDASIN, David E., . "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," CORE Discussion Papers RP -831, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Timothy Besley & Michael Smart, 2005.
"Fiscal Restraints and Voter Welfare,"
STICERD - Political Economy and Public Policy Paper Series
06, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Roger H. Gordon & John D. Wilson, 2001.
NBER Working Papers
8189, National Bureau of Economic Research, Inc.
- Sato, Motohiro, 2003. "Tax competition, rent-seeking and fiscal decentralization," European Economic Review, Elsevier, vol. 47(1), pages 19-40, February.
- Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
- Lorz, Jens Oliver, 1996.
"Capital mobility, tax competition, and lobbying for redistributive capital taxation,"
Kiel Working Papers
779, Kiel Institute for the World Economy.
- Lorz, Oliver, 1998. "Capital mobility, tax competition, and lobbying for redistributive capital taxation," European Journal of Political Economy, Elsevier, vol. 14(2), pages 265-279, May.
- Fuest, Clemens, 2000. " The Political Economy of Tax Coordination as a Bargaining Game between Bureaucrats and Politicians," Public Choice, Springer, vol. 103(3-4), pages 357-82, June.
- 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.
- Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
- Jeremy Edwards & Michael Keen, 1994.
"Tax competition and Leviathon,"
IFS Working Papers
W94/07, Institute for Fiscal Studies.
- John Douglas Wilson, 1989. "An Optimal Tax Treatment Of Leviathan," Economics and Politics, Wiley Blackwell, vol. 1(2), pages 97-117, 07.
- Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
- Stephen Ansolabehere & James M. Snyder, 2006. "Party Control of State Government and the Distribution of Public Expenditures," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 547-569, December.
- Orazio P. Attanasio & Guglielmo Weber, 1994.
"Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey,"
NBER Working Papers
4795, National Bureau of Economic Research, Inc.
- Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December.
- Janeba, Eckhard & Peters, Wolfgang, 1999. "Tax Evasion, Tax Competition and the Gains from Nondiscrimination: The Case of Interest Taxation in Europe," Economic Journal, Royal Economic Society, vol. 109(452), pages 93-101, January.
- Hongbin Cai & Daniel Treisman, 2005. "Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy," American Economic Review, American Economic Association, vol. 95(3), pages 817-830, June.
- Bender, Keith A, 1998. " The Central Government-Private Sector Wage Differential," Journal of Economic Surveys, Wiley Blackwell, vol. 12(2), pages 177-220, April.
When requesting a correction, please mention this item's handle: RePEc:kud:epruwp:07-04. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann)
If references are entirely missing, you can add them using this form.