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DECENTRALIZED TAX COMPETITION FOR BUSINESS CAPITAL AND NATIONAL ECONOMIC EFFICIENCY *
Author(s) -
Gerber Robert I.,
Hewitt Daniel P.
Publication year - 1987
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.1987.tb01173.x
Subject(s) - inefficiency , tax competition , allocative efficiency , economics , public finance , constraint (computer aided design) , capital (architecture) , competition (biology) , business , finance , market economy , microeconomics , tax reform , indirect tax , macroeconomics , mechanical engineering , history , ecology , archaeology , biology , engineering
For a nation composed of independent regions, the effects of local tax competition for business investments are examined. It is first shown that atomistic regional authorities tax only local resources to finance the provision of public services to business. Thus, an efficient interregional equilibrium is induced. Various political/institutional constraints are shown to cause misallocation of the capital stock and an inefficient provision of public services. The characterization of the inefficiency is shown to vary widely, depending upon the constraint under consideration.