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Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply

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  • Thomas Eichner
  • Marco Runkel

Abstract

This paper points to the important role which the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of policymaking in a decentralized economy with mobile capital and spillovers among jurisdictions. In accordance with previous studies, we show that under the assumption of a fixed capital supply (zero capital supply elasticity) the decentralized policy choice is optimal. If the capital supply elasticity is strictly positive, however, capital tax rates are inefficiently low in the decentralized equilibrium.

Suggested Citation

  • Thomas Eichner & Marco Runkel, 2010. "Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply," CESifo Working Paper Series 3214, CESifo.
    • Handle: RePEc:ces:ceswps:_3214
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    decentralized policymaking; spillovers; capital supply elasticity;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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