Resource title

Does tax competition really promote growth?

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Resource description

This paper considers the relationship between tax competition and growth in an endogenous growth model where there are stochastic shocks to productivity, and capital taxes fund a public good which may be for final consumption or an infrastructure input. Absent stochastic shocks, decentralized tax setting (two or more jurisdictions) maximizes the rate of growth, as the constant returns to scale present with endogenous growth implies extreme tax competition. Stochastic shocks imply that households face a portfolio choice problem, which may dampen down tax competition and may raise taxes above the centralized level. Growth can be lower with decentralization. Our results also predict a negative relationship between output volatility and growth, consistent with the empirical evidence.

Resource author

Marko Koethenbuerger, Benjamin Lockwood

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26147

Resource license

Adapt according to the presented license agreement and reference the original author.