Tax Competition in a Fiscal Union with Decentralized Leadership

By Marko Koethenbuerger. Social Science Research Network, 2003

131 citations recorded by the source corpus.

This paper examines capital tax competition in the presence of an interstate transfer policy without federal commitment. Lack of commitment implies that tax policy is chosen prior to federal transfers. The paper’s main result is that ex-post federal policy internalizes horizontal fiscal externalities, insulating tax policy from capital mobility. Federal policy, however, introduces a new source of inefficiency unrelated to tax competition. Specifically, ex-post transfer payments prove to be equivalent to an interstate revenue-sharing system which may render federal intervention in the presence of fiscal externalities welfare-deteriorating relative to tax competition.

Subfields: Accounting, Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/78111a029ab679b6ff486651bc36271c2b4ccfaa

Citations in the corpus

• Ex-Post Redistribution in a Federation: Implications for Corrective Policy (2006, unknown): “It undermines (ex-ante) inefficient incentives to bail-out firms (Qian and Roland, 1998) and limits welfare-reducing competition for mobile capital (Köthenbürger, 2004).”