When Trade Leads to Inefficient Public Good Provision: A Tax Competition Model

Emmanuelle Taugourdeau and Abderrahmane Ziad

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: This paper analyzes the tax competition mechanisms in a context of commodity trade. We show that the trade market equilibrium may restore the efficiency of the public good provision when agents from different countries have symmetric preferences. Asymmetry in preferences implies over or underprovision in public goods depending on the degree of asymmetry between countries. In both cases, the price adjustment leaves the capital stock unchanged so that the stock of capital is not affected by the taxes. Finally, we show that the centralized choice does not systematically restore the efficiency of the public good provision.

Keywords: Tax competition; Nash equilibrium; Interregional Trade (search for similar items in EconPapers)
JEL-codes: E62 F12 H21 H41 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-mac
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Related works:
Working Paper: When Trade Leads to Inefficient Public Good Provision: a Tax competition model (2015)
Working Paper: When Trade Leads to Inefficient Public Good Provision: a Tax competition model (2015)
Working Paper: When Trade Leads to Inefficient Public Good Provision: a Tax competition model (2015)
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