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Why Europe should love tax competition - and the U.S. even more so

Schjelderup, Guttorm; Janeba, Eckhard
Working paper
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URI
http://hdl.handle.net/11250/162860
Date
2004-04
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  • Discussion papers (SAM) [586]
Abstract
Is global competition for mobile capital harmful (less public goods) or beneficial

(less government waste)? This paper combines both aspects within a generalized

version of the comparative public finance model (Persson, Roland and Tabellini,

2000) by introducing multiple countries and endogenous tax bases. We consider the

role of political institutions and compare parliamentary democracies (Europe) and

presidential-congressional systems (USA) to show that increasing tax competition

is likely to improve voter welfare, even if public good supply decreases because rents

to politicians also fall. The conditions for voter welfare to improve are less stringent

under the presidential-congressional system than under parliamentary democracies.

Increasing tax competition lowers voter welfare if the only benefit to politicians is

to divert resources from the government budget and the future is valued highly.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2004:23

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