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Tax Competition, Elastic Labor Supply, and Growth

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  • Ulrich Hange

Abstract

In this paper we investigate the effects of tax competition in a simple endogenous growth model with elastic labor supply. Our analysis focuses on two issues. First, we show that all taxes, i.e. on capital, labor, and consumption, are harmful for growth. Second, we derive the optimal tax policy. A regional government chooses an inefficiently low tax rate on mobile capital in the presence of tax competition. In contrast, the tax rates on labor income and consumption are always set in order not to distort the consumption-leisure choice.

Suggested Citation

  • Ulrich Hange, 2008. "Tax Competition, Elastic Labor Supply, and Growth," CESifo Working Paper Series 2338, CESifo.
    • Handle: RePEc:ces:ceswps:_2338
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    References listed on IDEAS

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    More about this item

    Keywords

    tax competition; endogenous growth; elastic labor;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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