Tax Competition in a Fiscal Union with Decentralized Leadership

Marko Köthenbürger
Authors registered in the RePEc Author Service: Marko Koethenbuerger

No 943, CESifo Working Paper Series from CESifo

Abstract: This paper examines capital tax competition in the presence of an interstate transfer policy without federal commitment. Lack of commitment implies that tax policy is chosen prior to federal transfers. The paper’s main result is that ex-post federal policy internalizes horizontal fiscal externalities, insulating tax policy from capital mobility. Federal policy, however, introduces a new source of inefficiency unrelated to tax competition. Specifically, ex-post transfer payments prove to be equivalent to an interstate revenue-sharing system which may render federal intervention in the presence of fiscal externalities welfare-deteriorating relative to tax competition.

Keywords: federalism; capital tax competition; commitment; soft budget constraints (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-ure
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Journal Article: Tax competition in a fiscal union with decentralized leadership (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_943

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