Modeling Interjurisdictional Tax Competition in a Federal System
Interjurisdictional tax competition is a controversial theme little studied in an empirical approach in spite of the great advance in the theoretical debate at last decades. This paper aims to build a bridge between such theoretical issues and the empirical tools using an interregional general equilibrium model to evaluate the welfare effects of an experimental game of tax competition between two regional governments of the Brazilian federal system. The model recognizes the horizontal and vertical fiscal linkages underlying the Brazilian federalism. The results imply in a welfare-improving Nash equilibrium, in opposition with many theoretical issues. It can be seen that the fiscal externalities of tax competition does matter for such output not only due the mobility of the regional tax base but also because the substitution effect between regional goods and international goods since tax competition reduces the domestic prices. Additionally, the constitutional rules impose a rigid mechanism of fiscal transfers from central government to regional governments and contribute to alleviate the reduction pressures on the regional public goods because the increase in central governmentâ€™s tax base also increase the regional government revenues. Then, interjurisdicional tax competition in the Brazilian federal system can be associated with gains in private consumption that overcome the reduction in regional public good provisions, reinforcing the welfare-improving equilibrium.
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.:
- Rauscher, Michael, 1998. "Leviathan and Competition among Jurisdictions: The Case of Benefit Taxation," Journal of Urban Economics, Elsevier, vol. 44(1), pages 59-67, July.
- Dixon, Peter B. & Parmenter, B.R., 1996. "Computable general equilibrium modelling for policy analysis and forecasting," Handbook of Computational Economics,in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 1, pages 3-85 Elsevier.
- de Melo, Jaime & Robinson, Sherman, 1989. "Product differentiation and foreign trade in CGE models of small economies," Policy Research Working Paper Series 144, The World Bank.
- Cardarelli, Roberto & Taugourdeau, Emmanuelle & Vidal, Jean-Pierre, 2002.
" A Repeated Interactions Model of Tax Competition,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 4(1), pages 19-38.
- Cardarelli, R. & Taugourdeau, E. & Vidal, J.-P., 1999. "A Repeated Interactions Model of Tax Competition," Papiers d'Economie MathÃ©matique et Applications 1999.73, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Cardarelli, R. & Taugourdeau, E. & Vidal, J.-P., 1999. "A Repeated Interactions Model of Tax Competition," G.R.E.Q.A.M. 99a34, Universite Aix-Marseille III.
- Guilhoto, Joaquim J.M., 1995. "Um modelo computável de equilíbrio geral para planejamento e análise de políticas agrícolas (PAPA) na economia brasileira
[A computable general equilibrium model for planning and analysis of agricu," MPRA Paper 42349, University Library of Munich, Germany.
- David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
- Eduardo Haddad & Geoffrey Hewings, 1999. "The short-run regional effects of new investments and technological upgrade in the Brazilian automobile industry: An interregional computable general equilibrium analysis," Oxford Development Studies, Taylor & Francis Journals, vol. 27(3), pages 359-383.
- Haddad, Eduardo A. & Domingues, Edson P. & Perobelli, Fernando S., 2002. "Regional effects of economic integration: the case of Brazil," Journal of Policy Modeling, Elsevier, vol. 24(5), pages 453-482, August.
- Burbidge, John B. & Myers, Gordon M., 1994. "Population mobility and capital tax competition," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 441-459, August.
- Shah, Anwar, 1990. "The new fiscal federalism in Brazil," Policy Research Working Paper Series 557, The World Bank.
- Shah, A., 1991. "The new fiscal federalism in Brazil," World Bank - Discussion Papers 124, World Bank.
- Enrique G. Mendoza & Linda L. Tesar, 2003. "A Quantitative Analysis of Tax Competition v. Tax Coordination under Perfect Capital Mobility," NBER Working Papers 9746, National Bureau of Economic Research, Inc.
- Enrique G. Mendoza & Linda L. Tesar, 2003. "A Quantitative Analysis of Tax Competition v. Tax Coordination under Perfect Capital Mobility," Working Papers 507, Research Seminar in International Economics, University of Michigan.
- Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa06p359. 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: (Gunther Maier)
If references are entirely missing, you can add them using this form.