Intra-Jurisdictional Tax Competition

Abstract

While much has been written about inter-jurisdictional competition for tax revenues, especially concerning the choice between harmonization and competition, the literature has largely ignored intra-jurisdiction issues. The few articles examining this issue focus on how lower level governmental entities react to the tax decisions of a national government. However, in some instances, multiple co-equal taxing authorities might share the same base. These bodies face a dilemma over whether to harmonize their policies or to compete. We present a simple model of revenue maximizing tax authorities and derive the conditions under which harmonization dominates competition.

Keywords: Tax, Federalism, Harmonization, Rent-Seeking, Commons

JEL Classification: H20, H77