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Fiscal Coordination and Political Competition

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  • Lisa Grazzini
  • Tanguy Van Ypersele

Abstract

This contribution investigates fiscal coordination in the framework of two countries asymmetric in respect of their capital–labor endowment. When tax policies are decided by majority voting inside each country, and they are not coordinated at a supranational level, factors of production are inefficiently allocated, at equilibrium. Our main result shows that fiscal coordination, via a minimum capital tax, does not always lead to a Pareto–improvement for the median voter's welfare, with respect to the noncooperative outcome.

Suggested Citation

  • Lisa Grazzini & Tanguy Van Ypersele, 2003. "Fiscal Coordination and Political Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 305-325, April.
    • Handle: RePEc:bla:jpbect:v:5:y:2003:i:2:p:305-325
    DOI: 10.1111/1467-9779.00134
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