Munich Personal RePEc Archive

Preferences over public good, political delegation and leadership in tax competition

Pal, Rupayan and Sharma, Ajay (2018): Preferences over public good, political delegation and leadership in tax competition. Published in: Public Finance Review

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Abstract

Leadership (sequential choice) and political delegation are two mechanisms suggested to restrict ‘race-to-the-bottom’ in tax competition. In this paper, we analyze whether these two mechanisms when combined together would lead to unilaterally higher taxation or not. We show that political delegation with leadership in tax competition not only restricts ‘race-to-the-bottom’ but also mitigates the possibility of over provision of public good. In sequential choice game, only the follower region delegates taxation power to the policy maker but not the leader region. This puts a check on intensity of tax competition and leads to optimal provision of public good.

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