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Fiscal Competition and the Pattern of Public Spending

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  • KEEN, Michael

    (Department of Economics, University of Essex, Wivenhoe Park, Colchester C04 3SQ and the Institute for Fiscal Studies, UK)

  • MARCHAND, Maurice

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

Much attention has been given to the impact of fiscal competition on the level of public expenditure, but relatively little to the impact on its composition. Using a broadly familiar and reasonably rich model of fiscal competition in the presence of mobile capital, this paper establishes a systematic bias in public spending patterns: starting from the non-cooperative equilibrium, and holding tax rates constant, welfare would be improved by a coordinated reduction in the provision of local public inputs and a corresponding increase in the public provision of local public goods benefiting immobile consumers.

Suggested Citation

  • KEEN, Michael & MARCHAND, Maurice, 1996. "Fiscal Competition and the Pattern of Public Spending," LIDAM Discussion Papers CORE 1996001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1996001
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    1. Alain Crombrugghe & Henry Tulkens, 2006. "On Pareto Improving Commodity Tax Changes Under Fiscal Competition," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 491-506, Springer.
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