Does tax competition really promote growth?
Koethenbuerger, Marko and Lockwood, Ben (2007) Does tax competition really promote growth? Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.810).
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
This paper considers the relationship between tax competition and growth in an endogenous growth model where there are stochastic shocks to productivity,and capital taxes fund a public good which may be for final consumption or an infrastructure input. Absent stochastic shocks, decentralized tax setting (two or more jurisdictions) maximizes the rate of growth, as the constant returns to scale present with endogenous growth implies “extreme” tax competition. Stochastic shocks imply that households face a portfolio choice problem, which may dampen down tax competition and may raise taxes above the centralized level. Growth can be lower with decentralization. Our results also predict a negative relationship between output volatility and growth, consistent with the empirical evidence.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Taxation -- Econometric models, Intergovernmental fiscal relations, Fiscal policy, Economic development -- Mathematical models|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Number of Pages:||24|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Akai, N. and M. Sakata (2002), “Fiscal Decentralization Contributes to Economic Growth: Evidenc from State-Level Cross Section Data from the US”, Journal of Urban Economics 52, 93-108.
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