 Tax competition versus tax coordination in a multi-region endogenous growth model with an integrated capital marketEconomic Modelling, 2022, vol. 114, issue C Abstract: This paper analyzes tax competition and coordination, determining which is better in a multi-region endogenous growth model. With an integrated capital market, increased capital tax in one region generates external benefits to others through an increased tax base originating from capital flight. Because this efficiency cost affects resource allocation between private and public goods and intertemporal consumption and investment choice, a higher cost derives a lower equilibrium capital tax rate, leading to a higher economic growth rate. Consequently, the inefficiency costs exert two opposite welfare effects via inefficiently low public goods supply and high economic growth. Naturally, tax coordination to cope with severe tax competition is welfare improving to resolve the underprovision of public goods instead of accepting low growth. In contrast, tax coordination is not desirable if tax competition is mild because benefits from high growth outweigh the costs of an undersupply of public goods. Keywords: Economic growth; Tax competition; Tax coordination (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:114:y:2022:i:c:s0264999322001791 DOI: 10.1016/j.econmod.2022.105933 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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