Does Tax Competition Tame the Leviathan?

Marius Brülhart and Mario Jametti ()

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: We study the impact of tax competition on equilibrium taxes and welfare, focusing on the jurisdictional fragmentation of federations. In a representative-agent model of fiscal federalism, fragmentation among jurisdictions with benevolent tax-setting authorities unambiguously reduces welfare. If, however, tax-setting authorities pursue revenue maximization, fragmentation, by pushing down equilibrium tax rates, may under certain conditions increase citizen welfare. We exploit the highly decentralized and heterogeneous Swiss fiscal system as a laboratory for the estimation of these effects. While for purely direct-democratic jurisdictions (which we associate with benevolent tax setting) we find that tax rates increase in fragmentation, fragmentation has a moderating effect on the tax rates of jurisdictions with some degree of delegated government. Our results thereby support the view that tax competition can be second-best welfare enhancing by constraining the scope for public-sector revenue maximization.

Keywords: tax competition; optimal taxation; government preferences; fiscal federalism; direct democracy (search for similar items in EconPapers)
JEL-codes: D7 H2 H7 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2007-09
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.hec.unil.ch/deep/textes/07.09.pdf (application/pdf)

Related works:
Journal Article: Does tax competition tame the Leviathan? (2019)
Working Paper: Does Tax Competition Tame the Leviathan? (2007)
Working Paper: Does Tax Competition Tame the Leviathan? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:07.09

Access Statistics for this paper

More papers in Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie Université de Lausanne, Faculté des HEC, Département d’économie, Internef, CH-1015 Lausanne. Contact information at EDIRC.
Bibliographic data for series maintained by Christina Seld ().