Tax Competition Reconsidered 1 Amrita Dhillon University of Warwick Myrna Wooders Ben Zissimos 2 Vanderbilt University First draft September 2001 Final draft August 2006 Abstract: In a classic model of tax competition, we show that the level of public good provision and taxation in a decentralized equilibrium can be efficient or inefficient with either too much, or too little public good provision. The key is whether there exists a unilateral incentive to deviate from the efficient state and, if so, whether this entails raising or lowering taxes. A priori, there is no reason to suppose the incentive is in either one direction or the other. Keywords: Efficiency, Nash equilibrium, over-provision, tax competition, under-provision. JEL Classification Numbers: C72,H73,H21,H42,R50 1 Presented at a Warwick Summer Workshop on Public Economics, the ESRC Evolving Macroeconomy Workshop, London, and the Midwest Theory Meetings at Northwestern University. We are grateful to the participants for comments. We would especially like to thank Paul Rothstein and two anonymous referees for detailed suggestions that significantly improved the paper. Financial support from the ESRC’s Programme on the Evolving Macroeconomy is gratefully acknowledged. 2 Corresponding author: [email protected] Department of Economics, Vanderbilt University, VU Station B #351819, 2301 Vanderbilt Place, Nashville TN 37235-1819. ++1 (615) 322 3339. 1
Tax Competition Reconsidered
Jul 04, 2023
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