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Decentralized leadership in a federation and competition for mobile firms: Does economic integration matter?

Thierry Madiès () and Emmanuelle Taugourdeau ()
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Thierry Madiès: Université de Fribourg

No 2017-73, Working Papers from Center for Research in Economics and Statistics

Abstract: Our paper presents a model of decentralized leadership with fiscal equalization and imperfect economic integration. The degree of trade integration (re ected by trade costs) turns out to have an effect on both the equilibrium tax rates across states and the ex-post vertical equalization transfers. Our main results are the following: Ex post vertical transfers are welfare deteriorating for low levels of trade integration while they are welfare improving compared to tax competition when trade integration is high enough. However, when public goods are highly valued by the citizens of the federation, ex post transfers are always welfare enhancing.

Keywords: Tax competition; Trade Integration; Decentralized Leadership (search for similar items in EconPapers)
JEL-codes: H7 H2 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2017-12-14
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