Income vs. property tax competition: A normative comparison

Florian Kuhlmey (florian.kuhlmey@unibas.ch)
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Florian Kuhlmey: University of Basel

Working papers from Faculty of Business and Economics - University of Basel

Abstract: Income and property taxation are among the most prevalent policy instruments to finance local expenditure in countries with a high degree of decentralization. However, little is known about their relative efficiency and redistributive properties. This paper compares both tax instruments within the same framework and investigates their relative attractiveness to finance local expenditure. It further allows for inter-municipal spillovers and rivalry in the consumption of the publicly provided good. The analytical model identifies the different inefficiencies in both tax regimes which include intra- and inter-municipal free-riding. In a numerical illustration, the model is solved for the resulting equilibria. This allows to quantify the gross welfare loss from decentralization and also reveals a decomposition of the welfare loss into its components.

Keywords: Tax competition; normative analysis; income taxation; property taxation; segregation; decentralization; welfare decomposition. (search for similar items in EconPapers)
JEL-codes: H3 H7 R1 R2 (search for similar items in EconPapers)
Date: 2017-12-04
New Economics Papers: this item is included in nep-geo, nep-pbe, nep-pub and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:bsl:wpaper:2017/18

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