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Public Provision and Local Income Tax Competition

Florian Kuhlmey and Beat Hintermann

No 5789, CESifo Working Paper Series from CESifo

Abstract: We extend the literature on local income tax competition by allowing for inter-jurisdictional spillovers and imperfect rivalry in consumption of a publicly provided good. Comparing decentralized second-best results of a theoretical model with an efficient benchmark, we identify three inefficiencies: (1) imperfect redistribution; (2) inter-community free-riding; and (3) an inefficient allocation of the population. We quantify the relative size of these inefficiencies in a numerical implementation of the theoretical model, which reveals that free-riding rises unambiguously in the level of spillovers, whereas the welfare losses from (1) and (3) depend nonlinearly on the levels of spillovers and rivalry.

Keywords: publicly provided goods; tax competition; fiscal federalism; decentralization; free-riding; welfare analysis (search for similar items in EconPapers)
JEL-codes: H21 H40 H77 Q58 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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