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Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply

  • Marco Runkel

    ()

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Thomas Eichner

    ()

    (Department of Economics, University of Hagen)

This paper points to the important role which the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of policymaking in a decentralized economy with mobile capital and spillovers among jurisdictions. In accordance with previous studies, we show that under the assumption of a fixed capital supply (zero capital supply elasticity) the decentralized policy choice is optimal. If the capital supply elasticity is strictly positive, however, capital tax rates are inefficiently low in the decentralized equilibrium.

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File URL: http://www.fww.ovgu.de/fww_media/femm/femm_2010/2010_19.pdf
File Function: First version, 2010
Download Restriction: no

Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 100019.

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Length: 10 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:mag:wpaper:100019
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Web page: http://www.ww.uni-magdeburg.de

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  1. Hikaru Ogawa & David Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," Working Papers 2007-06, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  2. Beck, John H., 1983. "Tax competition, uniform assessment, and the benefit principle," Journal of Urban Economics, Elsevier, vol. 13(2), pages 127-146, March.
  3. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S3-27, April.
  4. 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.
  5. Gylfason, Thorvaldur, 1993. " Optimal Saving, Interest Rates, and Endogenous Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 517-33, December.
  6. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  7. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
  8. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
  9. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
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