Demographics and competition for capital in political economy

We examine the possible impacts of demographics on outcomes of competition for capital in political economy. For this, we develop a multi-region overlapping generations model, wherein public good provision financed by capital taxation is determined by majority vote. When population is growing, young...

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Bibliographic Details
Published in:International tax and public finance 2020-08, Vol.27 (4), p.865-889
Main Authors: Morita, Tadashi, Sato, Yasuhiro, Yamamoto, Kazuhiro
Format: Article
Language:English
Subjects:
Business Taxation/Tax Law
Capital movement
Capital tax
Demographics
Economics
Economics and Finance
Externality
Mobility
Older people
Political economy
Political majority
Public Finance
Tax rates
Taxation
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Summary:We examine the possible impacts of demographics on outcomes of competition for capital in political economy. For this, we develop a multi-region overlapping generations model, wherein public good provision financed by capital taxation is determined by majority vote. When population is growing, younger people represent the majority, whereas when it is decreasing, older people are in majority. We uncover the possible externalities arising from political processes as well as capital mobility and show that an inefficiently high capital tax rate is more likely to emerge in an economy with decreasing population than in one with growing population.
ISSN:0927-5940
1573-6970
DOI:10.1007/s10797-019-09587-0