Fiscal Coordination and Political Competition
Lisa Grazzini () and
Tanguy van Ypersele ()
Journal of Public Economic Theory, 2003, vol. 5, issue 2, 305-325
This contribution investigates fiscal coordination in the framework of two countries asymmetric in respect of their capital-labor endowment. When tax policies are decided by majority voting inside each country, and they are not coordinated at a supranational level, factors of production are inefficiently allocated, at equilibrium. Our main result shows that fiscal coordination, via a minimum capital tax, does not always lead to a Pareto-improvement for the median voter's welfare, with respect to the noncooperative outcome. Copyright 2003 Blackwell Publishing Inc..
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