A Hotelling Model of Fiscal Competition

Li-Chen Hsu
Additional contact information
Li-Chen Hsu: National Chengchi University

Public Finance Review, 2005, vol. 33, issue 4, 520-535

Abstract: This article examines a model in which two jurisdictions engage in fiscal competition. The jurisdictions’ strategic variables are labor tax rates and types of local public goods. Both are determined by majority voting. The article finds that in Nash equilibrium, labor tax rates will be efficiently chosen such that quantities of local public goods will achieve the first-best level. Furthermore, there are two symmetric Nash equilibria for the types of local public goods. These two equilibria, when they both exist, exhibit less public sector differentiation than if there were no mobility. However, a primary difference between them is that when the net gain of more population increases, in one equilibrium jurisdictions will raise the similarity of local public goods to attract population, but in the other equilibrium jurisdictions will differentiate themselves more to prevent harsh competition.

Keywords: fiscal competition; local public goods; Hotelling model; labor mobility (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/1091142105275410 (text/html)

Related works:
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:sae:pubfin:v:33:y:2005:i:4:p:520-535

DOI: 10.1177/1091142105275410

Access Statistics for this article

More articles in Public Finance Review
Bibliographic data for series maintained by SAGE Publications ().