The Politics of 1992: Fiscal Policy and European Integration

Torsten Persson () and Guido Tabellini

The Review of Economic Studies, 1992, vol. 59, issue 4, 689-701

Abstract: The internal market in Europe will greatly increase the international mobility of resources. How will this affect fiscal policy in different countries? We consider taxation of capital in a two-country model, where a democratically-chosen government in each country chooses tax policy. Higher capital mobility changes the politico-economic equilibrium in two ways. On the one hand, it leads to more tax competition between the countries: this "economic effect" tends to lower tax rates in both countries. On the other hand, it alters voters' preferences and makes them elect a different government: this "political effect" offsets the increased tax competition, although not completely.

Date: 1992
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Working Paper: The Politics of 1992: Fiscal Policy and European Integration (1991)
Working Paper: The Politics of 1992: Fiscal Policy and European Integration (1990)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:59:y:1992:i:4:p:689-701.

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