Political support for tax decentralisation

Susana Peralta ()

No 2004024, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper presents a spatial model of a city with two unequally productive jurisdictions. City residents bear a commuting cost to work in either of the two jurisdictions. In each jurisdiction, a fixed public budget must be financed with a wage tax and a head-tax. We compare the first best optimum to tax decentralisation equilibria. From the total welfare viewpoint, tax competition is always inefficient. Inefficiency may be higher under utilitarian governments or majoritarian ones. If local governments are utilitarian, the more productive jurisdiction is better off at the first best than with tax competition, while the other is worst off. If they are majoritarian, both jurisdictions will under some conditions prefer the tax decentralisation to the first best.

Keywords: tax competition; commuting; median voter equilibria (search for similar items in EconPapers)
JEL-codes: H23 H71 H73 R23 R5 (search for similar items in EconPapers)
Date: 2004-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Political Support for Tax Decentralization (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2004024

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