Fiscal Competition in Space and Time: An Endogenous-Growth Approach
29 Pages Posted: 6 Jul 2007
Date Written: July 2007
Is tax competition good for economic growth? The paper addresses this question by means of a simple model of endogenous growth. There are many small jurisdictions in a large federation and individual governments benevolently maximise the welfare of immobile residents. Investment is costly: Quadratic installation and de-installation costs limit the mobility of capital. The paper looks at optimal taxation and long-run growth. In particular, the effects of variations in the cost parameter on economic growth and taxation are considered. It is shown that balanced endogenous growth paths do not always exist and effects of changes in installation costs are ambiguous.
JEL Classification: H21, H72, O41
Suggested Citation: Suggested Citation