Tax Competition, Elastic Labor Supply, and Growth

Ulrich Hange ()

No 2338, CESifo Working Paper Series from CESifo

Abstract: In this paper we investigate the effects of tax competition in a simple endogenous growth model with elastic labor supply. Our analysis focuses on two issues. First, we show that all taxes, i.e. on capital, labor, and consumption, are harmful for growth. Second, we derive the optimal tax policy. A regional government chooses an inefficiently low tax rate on mobile capital in the presence of tax competition. In contrast, the tax rates on labor income and consumption are always set in order not to distort the consumption-leisure choice.

Keywords: tax competition; endogenous growth; elastic labor (search for similar items in EconPapers)
JEL-codes: H21 H70 O23 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2338

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