Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2008/22:
The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions
Eckhard Janeba ()
and Guttorm Schjelderup ()
Abstract: The views on the welfare effects of tax competition differ
widely. Some see the fiscal externalities as the cause for underprovision
of public goods, while others see tax competition as means to reduce
government inefficiencies. Using a comparative politics approach we show
that tax competition among presidential-congressional democracies is
typically welfare improving, while harmful among parliamentary democracies
if under the latter the marginal benefit of the public good is sufficiently
high. The results hold when politicians seek re-election because of
exogenous benefits of holding office. By contrast, when politicians hold
office only to extract rents, tax competition is harmful if politicians are
sufficiently patient.
Keywords: Tax competition; welfare effects; comparative politics approach; (follow links to similar papers)
JEL-Codes: H24; (follow links to similar papers)
28 pages, October 17, 2008
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