Interregional Tax Competition and Intraregional Political Competition: The Optimal Provision of Public Goods
This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods. In contrast to Hoyt's (1991) finding that the extent to which public goods are undersupplied is monotonically increasing in the number of competing regions, we show that the relationship between the level of public good supply and the number of competing regions is nonmonotonic if political as well as tax competition is considered. Interestingly, some certain interaction between interregional tax competition and intraregional political competition can result in the optimal provision of public goods.
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