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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Political delegation, Foreign-owned mobile capital, Sequential tax competition, Public good provision, Fiscal competition
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H4 - Publicly Provided Goods > H42 - Publicly Provided Private Goods; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R5 - Regional Government Analysis

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