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State Tax and Policy Competition For Mobile Capital[Note 1. Thanks are due to two anonymous referees for helpful ...]
Author(s) -
Petchey Jeffrey D.,
Shapiro Perry
Publication year - 2002
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/1475-4932.00049
Subject(s) - tax competition , capital (architecture) , economics , competition (biology) , physical capital , externality , capital deepening , financial capital , distribution (mathematics) , tax policy , capital formation , market economy , tax reform , indirect tax , microeconomics , human capital , ecology , mathematical analysis , mathematics , archaeology , biology , history
We characterise a model in which states engage in tax and policy competition with one another to attract mobile capital. The mix of policies chosen is shown to depend on the interaction between a desire to exploit capital for the benefit of domestic residents (labour) and a net marginal externality generated by capital. It is also argued that competition between states leads to an inefficient supply and geographical distribution of capital within the domestic economy if capital markets are not fully integrated.