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The Politics of 1992: Fiscal Policy and European Integration

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Author Info
Persson, Torsten
Tabellini, Guido

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Abstract

The internal market in Europe will greatly increase the international mobility. How will this affect fiscal policy in different countries? The authors consider taxation of capital in a two-country model where a democratically chosen government in each country chooses tax policy. Higher capital mobility changes the politico-economic equilibrium in two ways. On the one hand, it leads to more tax competition between the countries: this "economic effect" tends to lower tax rates in both countries. On the other hand, it alters voters' preferences and makes them elect a different government: this "political effect" offsets the increased tax competition, although not completely. Copyright 1992 by The Review of Economic Studies Limited.

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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 59 (1992)
Issue (Month): 4 (October)
Pages: 689-701
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Handle: RePEc:bla:restud:v:59:y:1992:i:4:p:689-701

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References listed on IDEAS
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.:
  1. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, vol. 46(2), pages 317-30, March. [Downloadable!] (restricted)
  2. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, vol. 55(1), pages 53-70, September. [Downloadable!] (restricted)
  3. Gordon, Roger H, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 567-86, November. [Downloadable!] (restricted)
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  4. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen. [Downloadable!] (restricted)
  5. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October. [Downloadable!] (restricted)
  6. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March. [Downloadable!] (restricted)
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  7. Peter A. Diamond, 1982. "Protection, Trade Adjustment Assistance, and Income Distribution," NBER Chapters, in: Import Competition and Response, pages 123-150 National Bureau of Economic Research, Inc. [Downloadable!]
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