Dynamic Tax Competition under Asymmetric Productivity of Public Capital
We here expand the static tax competition models in symmetric small regions, which were indicated by Zodrow and Mieszkowski (1986) and Wilson (1986), to a dynamic tax competition model in large regions, taking consideration of the regional asymmetry of productivity of public capital and the existence of capital accumulation. The aim of this paper is to verify how the taxation policy affects asymmetric equilibrium based on a simulation analysis using an overlapping generations model in two regions. It is assumed that the public capital as a public input is formed on the basis of the capital tax of local governments and the lump-sum tax of the central government. As demonstrated in related literature, the optimal capital tax rate should become zero when the lump-sum tax is imposed only on older generations, however, the optimal tax rate may become positive when it is imposed proportionally on younger and older generations. In the asymmetric equilibrium, several cooperative solutions can possibly exist which can achieve a higher welfare standard than the actualized cooperative solution either in Region1 or 2. JEL classification Ã”ÂºÃ¶ H21; H42; H71; H77; R13; R53 Keywords Ã”ÂºÃ¶ Tax competition, Capital taxation, Capital accumulation, Public inputs, Infrastructure
|Date of creation:||Sep 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Welthandelsplatz 1, 1020 Vienna, Austria|
Web page: http://www.ersa.org
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.:
- Wildasin, D.E., 1987.
"Nash equilibria in models of fiscal competition,"
CORE Discussion Papers
1987020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Yakita, Akira, 1994. "Public investment criterion with distorted capital markets in an overlapping generations economy," Journal of Macroeconomics, Elsevier, vol. 16(4), pages 715-728.
- David E. Wildasin, 2000.
"Fiscal Competition in Space and Time,"
CESifo Working Paper Series
370, CESifo Group Munich.
- David F. Burgess, 1988. "Complementarity and the Discount Rate for Public Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 527-541.
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa10p1033. 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.