Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model

This paper examines the effects of policy coordinationin a two-country world with endogenous growth and imperfect capitalmobility. Redistribution is financed by a source-based capital-incometax. Comparing the cases in which countries do and do not coordinatetheir fiscal policies, it is shown that re...

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Bibliographic Details
Published in:International tax and public finance 1997, Vol.4 (4), p.485-497
Main Authors: Lejour, Arjan M, Verbon, Harrie
Format: Article
Language:English
Subjects:
Capital Mobility
Competition
Economic growth
Economic Integration
Endogenous Growth
Fiscal policy
Growth models
Income distribution
Public finance
Tax Competition
Taxation
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Summary:This paper examines the effects of policy coordinationin a two-country world with endogenous growth and imperfect capitalmobility. Redistribution is financed by a source-based capital-incometax. Comparing the cases in which countries do and do not coordinatetheir fiscal policies, it is shown that redistribution can beinefficiently high if fiscal policies are not coordinated. Thisis because the negative effects of fiscal policy on home savingsaffect economic growth abroad by inducing a decline in foreigninvestment. This externality can dominate the well-known tax-baseexternality. Copyright Kluwer Academic Publishers 1997
ISSN:0927-5940
1573-6970
DOI:10.1023/a:1008613015303