Tax competition and tax base equalization in the presence of multiple tax instruments

The literature on tax competition has argued that tax base equalization, which reduces regional disparities in tax bases, can serve as a means of internalizing horizontal and vertical fiscal externalities. This argument assumes that each government relies on a single tax base (a regional tax on mobi...

Full description

Saved in:
Bibliographic Details
Published in:International tax and public finance 2022-10, Vol.29 (5), p.1213-1226
Main Author: Matsumoto, Mutsumi
Format: Article
Language:English
Subjects:
Business Taxation/Tax Law
Capital stock
Capital tax
Competition
Consumption
Economics
Economics and Finance
Entitlement
Externality
Fiscal policy
Internalization
International taxation
Public Finance
Regional government
Regions
State court decisions
Tax base
Tax increases
Tax rates
Tax revenues
Taxation
Taxes
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The literature on tax competition has argued that tax base equalization, which reduces regional disparities in tax bases, can serve as a means of internalizing horizontal and vertical fiscal externalities. This argument assumes that each government relies on a single tax base (a regional tax on mobile capital and a federal tax on savings). This paper considers the case in which a distortionary labor tax is also available. Internalizing fiscal externalities requires that while the regional capital tax base is fully equalized, a region’s equalization entitlement for the labor tax is positive when its tax base is “larger” than the average tax base of all regions. This efficient tax base equalization system is incompatible with the primary objective of fiscal equalization.
ISSN:0927-5940
1573-6970
DOI:10.1007/s10797-021-09703-z