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Tax Competition and Tax Harmonisation in an Urban Context

Author

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  • Oana Secrieru (Machidon)

    (Queen's Unviersity)

Abstract

It is a standard prediction in the literature on tax competition that mobility of factors between jurisdictions causes local governments to choose too low tax rates and to underprovide public goods. This paper shows circumstances when the prediction may be false. The prediction may be false when workers live in one jurisdiction and commute to work in another. We show that in an urban setting land developers will make inefficient choices of both tax rates and public expenditures. Whether these are too high or too low from a social point of view is ambiguous. The only unambiguous prediction is that the non-cooperative payroll tax is inefficiently low. In our framework, the locational inefficiency is twofold, both residents and workers are inefficiently allocated across communities in equilibrium. We also show that tax harmonisation and/or voluntary inter-community transfers are not effective in restoring efficiency.

Suggested Citation

  • Oana Secrieru (Machidon), 2001. "Tax Competition and Tax Harmonisation in an Urban Context," Working Papers 999, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:999
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_999.pdf
    File Function: First version 2001
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    More about this item

    Keywords

    Urban; Tax Competition; Tax Harmonisation; Public Goods; Property Tax; Payroll Tax;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H79 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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