Decentralization and International Tax Competition

30 Pages Posted: 3 Mar 2003

See all articles by Eckhard Janeba

Eckhard Janeba

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

John D. Wilson

Michigan State University - Department of Economics

Date Written: February 2003

Abstract

This paper models tax competition between two countries that are divided into regions. In the first stage of the game, the strategy variable for each country is the division of the provision of a continuum of public goods between the central and regional governments. In the second stage, the central and regional governments choose their tax rates on capital. A country's decentralization level serves as a strategic tool through its influence on the mix of horizontal and vertical externalities that exist under tax competition. In contrast to standard tax competition models, decentralizing the provision of public goods may be welfare-enhancing.

JEL Classification: F21, H2, H4

Suggested Citation

Janeba, Eckhard and Wilson, John D., Decentralization and International Tax Competition (February 2003). CESifo Working Paper Series No. 854. Available at SSRN: https://ssrn.com/abstract=382941

Eckhard Janeba (Contact Author)

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

John D. Wilson

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

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