Welfare-improving competition for mobile capital

doi:10.1016/j.jue.2004.08.003

Journal of Urban Economics

Volume 57, Issue 1, January 2005, Pages 1-18

https://doi.org/10.1016/j.jue.2004.08.003 Get rights and content

Abstract

This paper constructs a model in which regions provide firms with a public input, financed by taxes that residents choose to levy on capital and wage income. Self-interested government officials face incentives to provide the public input, because its positive impact on labor and capital productivity leads to larger tax bases. The positive relation between tax revenue and the public input is strengthened if capital is mobile across regions. Government officials engage in “expenditure competition,” leaving residents better off than they would be in the absence of capital mobility. To further enhance public sector incentives, residents may choose to tax capital income at a positive rate, although investment is discouraged.

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Welfare-improving competition for mobile capital

Abstract

Regional Science and Urban Economics

European Economic Review

Journal of Public Economics

Regional Science and Urban Economics

Journal of Urban Economics

Journal of Urban Economics

Journal of Public Economics

Journal of Urban Economics

Journal of Urban Economics

Fiscal decentralization and government size: An international test for Leviathan accounting for unmeasured economic activity

International Tax and Public Finance

Two games of interjurisdictional competition when local governments provide industrial public goods

International Tax and Public Finance

Why is capital so immobile internationally? Possible explanations and implications for capital income taxation

American Economic Review

The Power to Tax

The political economy of Leviathan