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When Trade Leads to Inefficient Public Good Provision: A Tax Competition Model

Author

Listed:
  • Emmanuelle Taugourdeau

    (CNRS, Paris School of Economics, CES, ENS Cachan)

  • Abderrahmane Ziad

    (CREM, UMR CNRS 6211, Normandy University, University of Caen Basse-Normandie)

Abstract

This paper analyzes the tax competition mechanisms in a context of commodity trade. We show that the trade market equilibrium may restore the efficiency of the public good provision when agents from different countries have symmetric preferences. Asymmetry in preferences implies over or underprovision in public goods depending on the degree of asymmetry between countries. In both cases, the price adjustment leaves the capital stock unchanged so that the stock of capital is not affected by the taxes. Finally, we show that the centralized choice does not systematically restore the efficiency of the public good provision.

Suggested Citation

  • Emmanuelle Taugourdeau & Abderrahmane Ziad, 2015. "When Trade Leads to Inefficient Public Good Provision: A Tax Competition Model," Economics Working Paper Archive (University of Rennes & University of Caen) 201507, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:201507
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    References listed on IDEAS

    as
    1. Becker, Johannes & Runkel, Marco, 2012. "Even small trade costs restore efficiency in tax competition," Journal of Urban Economics, Elsevier, vol. 72(2), pages 191-195.
    2. Roberto Cardarelli & Emmanuelle Taugourdeau & Jean‐Pierre Vidal, 2002. "A Repeated Interactions Model of Tax Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 19-38, January.
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    4. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
    5. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    6. Peralta, Susana & van Ypersele, Tanguy, 2006. "Coordination of capital taxation among asymmetric countries," Regional Science and Urban Economics, Elsevier, vol. 36(6), pages 708-726, November.
    7. Richter, Wolfram F. & Wellisch, Dietmar, 1996. "The provision of local public goods and factors in the presence of firm and household mobility," Journal of Public Economics, Elsevier, vol. 60(1), pages 73-93, April.
    8. Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 153-166, March.
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    More about this item

    Keywords

    Tax competition; Nash equilibrium; Interregional Trade;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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