The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions

30 Pages Posted: 23 Oct 2008

See all articles by Eckhard Janeba

Eckhard Janeba

University of Mannheim - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Guttorm Schjelderup

Norwegian School of Economics (NHH) - Department of Business and Management Science

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Date Written: October 17, 2008

Abstract

The views on the welfare effects of tax competition differ widely. Some see the fiscal externalities as the cause for underprovision of public goods, while others see tax competition as means to reduce government inefficiencies. Using a comparative politics approach we show that tax competition among presidential-congressional democracies is typcially welfare improving, while harmful among parliamentary democracies if under the latter the marginal benefit of the public good is sufficiently high. The results hold when politicians seek re-election because of exogenous benefits of holding office. By contrast, when politicians hold office only to extract rents, tax competition is harmful if politicians are sufficiently patient.

Suggested Citation

Janeba, Eckhard and Schjelderup, Guttorm, The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions (October 17, 2008). NHH Dept. of Finance & Management Science Discussion Paper No. 2008/22. Available at SSRN: https://ssrn.com/abstract=1288045 or http://dx.doi.org/10.2139/ssrn.1288045

Eckhard Janeba

University of Mannheim - Department of Economics ( email )

L7, 3-5
D-68131 Mannheim
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Guttorm Schjelderup (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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