Redistribution, Fiscal Competition, and the Politics of Economic Integration

Anke Kessler

No 629, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: The paper examines the redistributive consequences of the economic integration of factor markets. We consider two countries that redistribute income among their residents. The social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants. If either capital or labour is internationally mobile, the countries engage in fiscal competition, i.e., the partial integration of capital or labour markets is detrimental to the countries' redistributive ability. A move from partial to full integration, however, may alleviate rather than intensify fiscal competition, particularly, if the two countries face sufficiently similar economic and political conditions. In such a situation, for example, increased integration of labour markets will soften the incentives compete for mobile capital. As a result, there is more redistribution in equilibrium and a majority of the population in each country is strictly better off.

Date: 2000-08-01
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Related works:
Journal Article: Redistribution, Fiscal Competition, and the Politics of Economic Integration (2002)
Working Paper: Redistribution, Fiscal Competition, and the Politics of Economic Integration (2000)
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