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Political support for tax decentralisation

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  • PERALTA, Susana

Abstract

This paper presents a spatial model of a city with two unequally productive jurisdictions. City residents bear a commuting cost to work in either of the two jurisdictions. In each jurisdiction, a fixed public budget must be financed with a wage tax and a head-tax. We compare the first best optimum to tax decentralisation equilibria. From the total welfare viewpoint, tax competition is always inefficient. Inefficiency may be higher under utilitarian governments or majoritarian ones. If local governments are utilitarian, the more productive jurisdiction is better off at the first best than with tax competition, while the other is worst off. If they are majoritarian, both jurisdictions will under some conditions prefer the tax decentralisation to the first best.

Suggested Citation

  • PERALTA, Susana, 2004. "Political support for tax decentralisation," LIDAM Discussion Papers CORE 2004024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2004024
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    Cited by:

    1. Braid, Ralph M., 2009. "The employment effects of a central city's source-based wage tax or hybrid wage tax," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 512-521, July.
    2. Braid, Ralph M., 2010. "Provision of a pure local public good in a spatial model with many jurisdictions," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 890-897, December.
    3. Susana Peralta, 2007. "Political Support for Tax Decentralization," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(6), pages 1013-1030, December.

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    More about this item

    Keywords

    tax competition; commuting; median voter equilibria;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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