Competing in taxes and investment under fiscal equalization

• 成果类型: Article
• 署名作者: Hindriks, Jean; Peralta, Susana; Weber, Shlomo
• 署名单位: Universite Catholique Louvain; Universidade Nova de Lisboa; Southern Methodist University; Centre for Economic Policy Research - UK
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2007.11.012
• 发表日期: 2008
• 页码: 2392-2402
• 关键词: Heterogeneous regions; Fiscal federalism; Fiscal equalization; Public investments

摘要

The paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital. Regions' choices determine allocation of capital across the regions and their revenues under a tax sharing scheme. This framework allows for the examination of different approaches to fiscal equalization schemes [Boadway, R., Flatters, F., 1982. Efficiency and equalization payments in a federal system of government: a synthesis and extension of recent results, Canadian Journal of Economics 15, 613-633; Weingast, B.R., 2006. Second Generation Fiscal Federalism: Implication for Decentralized Democratic Governance and Economic Development, Working Paper, Hoover Institution, Stanford University]. We show that tax competition distorts (downwards) public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes. However, the equalization schemes remain beneficial not only for the federation and, under a low degree of regional asymmetry, also for each region. (C) 2008 Elsevier B.V. All rights reserved.