Fiscal Competition and Growth When Capital is Imperfectly Mobile

23 Pages Posted: 19 Jan 2013

See all articles by Daniel Becker

Daniel Becker

European University Viadrina Frankfurt (Oder)

Michael Rauscher

University of Rostock - Department of Economics; University of Rostock - Faculty of Business Administration, Economics and Social Sciences; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: January 2013

Abstract

Is tax competition good for economic growth? We address this question using a simple model of endogenous growth. Governments in a system of many small jurisdictions benevolently maximize the welfare of immobile residents. Quadratic (de‐)installation costs limit the mobility of capital. We look at optimal taxation and long‐run growth, and we analyse the effects of cost parameter variations on taxation and growth. A race to the bottom in capital tax rates is only one possibility; the relationship between capital mobility and capital tax rates is not monotonic. Growth and capital mobility are unambiguously positively related.

Keywords: Capital tax competition, endogenous growth, imperfect capital mobility

JEL Classification: H21, H70, O40

Suggested Citation

Becker, Daniel and Rauscher, Michael, Fiscal Competition and Growth When Capital is Imperfectly Mobile (January 2013). The Scandinavian Journal of Economics, Vol. 115, Issue 1, pp. 211-233, 2013, Available at SSRN: https://ssrn.com/abstract=2203298 or http://dx.doi.org/10.1111/j.1467-9442.2012.01735.x

Daniel Becker

European University Viadrina Frankfurt (Oder) ( email )

Grosse Scharrnstr. 59
Frankfurt (Oder), Brandenburg 15230
Germany

Michael Rauscher

University of Rostock - Department of Economics ( email )

Ulmenstr. 69
Rostock, 18057
Germany

HOME PAGE: http://www.wiwi.uni-rostock.de/vwl

University of Rostock - Faculty of Business Administration, Economics and Social Sciences ( email )

Ulmenstr. 69
Rostock, 18057
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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