Does Tax Competition Tame the Leviathan?

Mario Jametti () and Marius Brülhart ()
Additional contact information
Marius Brülhart: University of Lausanne

Working Papers from York University, Department of Economics

Abstract: We study the impact of tax competition on equilibrium taxes and welfare, focusing on the jurisdictional fragmentation of federations. In a representative-agent model of fiscal federalism, fragmentation among jurisdictions with benevolent tax-setting authorities unambiguously reduces welfare. If, however, tax-setting authorities pursue revenue maximization, fragmentation, by pushing down equilibrium tax rates, may under certain conditions increase citizen welfare. We exploit the highly decentralized and heterogeneous Swiss fiscal system as a laboratory for the estimation of these e¤ects. While for purely direct-democratic jurisdictions (which we associate with benevolent tax setting) we find that tax rates increase in fragmentation, fragmentation has a moderating e¤ect on the tax rates of jurisdictions with some degree of delegated government. Our results thereby support the view that tax competition can be second-best welfare enhancing by constraining the scope for public-sector revenue maximization.

Keywords: tax competition; optimal taxation; government preferences; fiscal federalism; direct democracy (search for similar items in EconPapers)
JEL-codes: D7 H2 H7 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2007-09
New Economics Papers: this item is included in nep-acc, nep-cdm, nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
http://dept.econ.yorku.ca/research/workingPapers/w ... 2007/Leviathan79.pdf
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to dept.econ.yorku.ca:80 (No such host is known. )

Related works:
Journal Article: Does tax competition tame the Leviathan? (2019)
Working Paper: Does Tax Competition Tame the Leviathan? (2007)
Working Paper: Does Tax Competition Tame the Leviathan? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:yca:wpaper:2007_7

Access Statistics for this paper

More papers in Working Papers from York University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Support ( this e-mail address is bad, please contact ).