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Preferences over Public Good, Political Delegation, and Leadership in Tax Competition

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  • Rupayan Pal
  • Ajay Sharma

Abstract

Leadership (sequential choice) and political delegation are two mechanisms suggested to restrict “race-to-the-bottom†in tax competition. In this article, we analyze whether these two mechanisms when combined together would lead to unilaterally higher taxation or not. We show that political delegation with leadership in tax competition not only restricts race-to-the-bottom but also mitigates the possibility of overprovision of public good. In sequential choice game, only the follower region delegates taxation power to the policy maker but not the leader region. This puts a check on intensity of tax competition and restricts the under provision of public good.

Suggested Citation

  • Rupayan Pal & Ajay Sharma, 2019. "Preferences over Public Good, Political Delegation, and Leadership in Tax Competition," Public Finance Review, , vol. 47(4), pages 718-746, July.
    • Handle: RePEc:sae:pubfin:v:47:y:2019:i:4:p:718-746
    DOI: 10.1177/1091142118817901
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    More about this item

    Keywords

    political delegation; foreign-owned mobile capital; sequential tax competition; public good provision; fiscal competition;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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