Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model

Arjan Lejour and Harrie Verbon ()

International Tax and Public Finance, 1997, vol. 4, issue 4, 485-497

Abstract: This paper examines the effects of policy coordinationin a two-country world with endogenous growth and imperfect capitalmobility. Redistribution is financed by a source-based capital-incometax. Comparing the cases in which countries do and do not coordinatetheir fiscal policies, it is shown that redistribution can beinefficiently high if fiscal policies are not coordinated. Thisis because the negative effects of fiscal policy on home savingsaffect economic growth abroad by inducing a decline in foreigninvestment. This externality can dominate the well-known tax-baseexternality. Copyright Kluwer Academic Publishers 1997

Keywords: Endogenous Growth; Tax Competition; Economic Integration; Capital Mobility (search for similar items in EconPapers)
Date: 1997
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DOI: 10.1023/A:1008613015303

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