Public Investment, Taxation, and Growth in Economies with Multi-leveled Governments

Philip Bodman, Harry Campbell () and Thanh Le

No 4512, MRG Discussion Paper Series from School of Economics, University of Queensland, Australia

Abstract: This paper examines the dynamic effects of taxation and investment on the growth path of an economy. A simple neoclassical growth model with different tiers of government is developed. The initial focus is on governments that aim to maximise their citizens’ welfare and economic performance by providing consumption goods for private consumption and public capital for private production. It is shown that a long-run per capita output maximising tax rate can be derived and that there also exists an optimal degree of fiscal decentralisation. The analysis then extends to the case where governments attempt instead to maximise their own tax revenue to fund expenditures which do not contribute to the utility of their citizens. Three different cases of taxation arrangement are considered: tax competition, tax sharing, and tax coordination. The modeling shows that intensifying tax competition will lead to an increase in the aggregate tax rate as compared to the cases of sharing and coordination amongst governments. These tax rates are both higher than the long-run per capita output maximising rate that was implied under the welfare maximising government scenario.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://economics.uq.edu.au/files/47056/4512.pdf

Related works:
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:qld:uqmrg6:45

Access Statistics for this paper

More papers in MRG Discussion Paper Series from School of Economics, University of Queensland, Australia Contact information at EDIRC.
Bibliographic data for series maintained by SOE IT ().