The effects of tax competition when politicians create rents to buy political support

• 成果类型: Article
• 署名作者: Eggert, Wolfgang; Sorensen, Peter Birch
• 署名单位: University of Copenhagen; University of Paderborn; Leibniz Association; Ifo Institut
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2007.12.002
• 发表日期: 2008
• 页码: 1142-1163
• 关键词: Tax competition; rent-seeking; probabilistic voting

摘要

We set up a probabilistic voting model to explore the hypothesis that tax competition improves public sector efficiency and social welfare. In the absence of tax base mobility, distortions in the political process induce vote-maximising politicians to create rents to public sector employees. Allowing tax base mobility may be welfare-enhancing up to a point, because the ensuing tax competition will reduce rents. However, if tax competition is carried too far, it will reduce welfare by causing an underprovision of public goods. Starting from an equilibrium where tax competition has eliminated all rents, a coordinated rise in capital taxation will always be welfare-improving. For plausible parameter values it will even be welfare-enhancing to carry tax coordination beyond the point where rents to public sector workers start to emerge. (C) 2007 Elsevier B.V. All rights reserved.