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Public good differentiation and the intensity of tax competition

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Author Info
Zissimos, Ben
Wooders, Myrna

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Abstract

We show that, in a setting where tax competition promotes efficiency, variation in the extent to which firms can use public goods to reduce costs brings about a reduction in the intensity of tax competition. This in turn brings about a loss of efficiency. In this environment, a [`]minimum tax' counters the reduction in the intensity of tax competition, thereby enhancing efficiency. [`]Split-the-difference' tax harmonization also potentially enhances efficiency but would not be agreed upon by governments because it lowers the payoff to at least one of them. This paper also presents an explanation for how traditionally high-tax countries have continued to set taxes at a relatively high rate even as markets have become more integrated.

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Publisher Info
Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 5-6 (June)
Pages: 1105-1121
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Handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:1105-1121

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Web page: http://www.elsevier.com/locate/inca/505578

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  1. Ben Zissimos & Myrna H. Wooders, 2006. "Relaxing Tax Competition through Public Good Differentiation," Working Papers 0601, Department of Economics, Vanderbilt University. [Downloadable!]
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  2. Kind, Hans Jarle & Knarvik, Karen Helene Midelfart & Schjelderup, Guttorm, 2000. "Competing for capital in a 'lumpy' world," Journal of Public Economics, Elsevier, vol. 78(3), pages 253-274, November. [Downloadable!] (restricted)
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  3. Wilson, John Douglas & Janeba, Eckhard, 2005. "Decentralization and international tax competition," Journal of Public Economics, Elsevier, vol. 89(7), pages 1211-1229, July. [Downloadable!] (restricted)
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  4. Keen, M. & Marchand, M., 1996. "Fiscal Competition and the Pattern of Public Spending," Papers 9601, Catholique de Louvain - Center for Operations Research and Economics.
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  5. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November. [Downloadable!] (restricted)
  6. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December. [Downloadable!] (restricted)
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  7. Michael Keen & Christos Kotsogiannis, 2003. "Leviathan and Capital Tax Competition in Federations," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 177-199, 04. [Downloadable!] (restricted)
  8. Hoyt, William H & Jensen, Richard A, 2001. " Product Differentiation and Public Education," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(1), pages 69-93. [Downloadable!] (restricted)
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  9. Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-56, August. [Downloadable!] (restricted)
  10. Lockwood, Ben, 2001. "Tax competition and tax co-ordination under destination and origin principles: a synthesis," Journal of Public Economics, Elsevier, vol. 81(2), pages 279-319, August. [Downloadable!] (restricted)
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  11. Justman, Moshe & Thisse, Jacques-Francois & van Ypersele, Tanguy, 2005. "Fiscal competition and regional differentiation," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 848-861, November. [Downloadable!] (restricted)
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  12. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September. [Downloadable!] (restricted)
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  13. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June. [Downloadable!] (restricted)
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  14. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June. [Downloadable!] (restricted)
  15. Mintz, Jack & Tulkens, Henry, 1996. "Optimality properties of alternative systems of taxation of foreign capital income," Journal of Public Economics, Elsevier, vol. 60(3), pages 373-399, June. [Downloadable!] (restricted)
  16. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  17. Justman, Moshe & Thisse, Jacques-Francois & van Ypersele, Tanguy, 2002. "Taking the bite out of fiscal competition," Journal of Urban Economics, Elsevier, vol. 52(2), pages 294-315, September. [Downloadable!] (restricted)
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  18. Hoyt, William H., 1999. "Leviathan, local government expenditures, and capitalization," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 155-171, March. [Downloadable!] (restricted)
  19. Lockwood, Ben & Makris, Miltiadis, 2006. "Tax incidence, majority voting and capital market integration," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1007-1025, August. [Downloadable!] (restricted)
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  20. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May. [Downloadable!] (restricted)
  21. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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