Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply

14 Pages Posted: 25 Oct 2010

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Marco Runkel

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

Date Written: October 25, 2010

Abstract

This paper points to the important role which the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of policymaking in a decentralized economy with mobile capital and spillovers among jurisdictions. In accordance with previous studies, we show that under the assumption of a fixed capital supply (zero capital supply elasticity) the decentralized policy choice is optimal. If the capital supply elasticity is strictly positive, however, capital tax rates are inefficiently low in the decentralized equilibrium.

Keywords: decentralized policymaking, spillovers, capital supply elasticity

JEL Classification: H23, H77, Q58

Suggested Citation

Eichner, Thomas and Runkel, Marco, Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply (October 25, 2010). CESifo Working Paper Series No. 3214. Available at SSRN: https://ssrn.com/abstract=1697458

Thomas Eichner

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Marco Runkel (Contact Author)

University of Munich - Department of Economics ( email )

Schackstr. 4
Munich, 80539
Germany
++49 (0) 89 2180 6339 (Phone)
++49 (0) 89 2180 3128 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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