Fiscal Competition, Capital-Skill Complementarity, and the Composition of Public Spending

Rainald Borck

FinanzArchiv: Public Finance Analysis, 2006, vol. 61, issue 4, 488-499

Abstract: Following Keen and Marchand (1997), the paper analyzes the effect of fiscal competition on the composition of public spending in a model where capital and skilled workers are mobile while low-skilled workers are immobile. Taxes are levied on capital and labor. Each group of workers benefits from a different kind of public good. Mobility of skilled workers provides an incentive for jurisdictions to spend too much on public goods benefiting the skilled and too little on those benefiting low-skilled workers. In the case of capital-skill complementarity, this incentive is strengthened. The analysis is then extended to allow for mobility of unskilled labor.

Keywords: tax competition; capital-skill complementarity; public spending (search for similar items in EconPapers)
JEL-codes: H77 J24 J61 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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Working Paper: Fiscal Competition, Capital-Skill Complementarity, and the Composition of Public Spending (2005)
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