Redistribution, Fiscal Competition, and the Politics of Economic Integration

Anke Kessler, Christoph Lülfesmann and Gordon Myers

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: The paper examines the redistributive consequences of the economic integration of factor markets. We consider two countries that redistribute income among their residents. The social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants. If either capital or labour is internationally mobile, the countries engage in fiscal competiton, i.e., the partial integration of capital or labour markets is detrimental to the countries' redistributive ability. A move from partial to full integration, however, may alleviate rather than intensify fiscal competition, particularly, if the two countries face sufficiently similar economic and political conditions. In such a situation, increased integration of labour markets will soften the incentives compete for mobile capital. As a result, there is more redistribution in equilibrium and a majority of the population in each country is strictly better off.

JEL-codes: D78 H23 H77 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2000-01, Revised 2000-02
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Redistribution, Fiscal Competition, and the Politics of Economic Integration (2002)
Working Paper: Redistribution, Fiscal Competition, and the Politics of Economic Integration (2000)
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