Fiscal Competition and Growth When Capital Is Imperfectly Mobile. (18th January 2013)

• Record Type: Journal Article
• Authors: Becker, Daniel; Rauscher, Michael
• Is Part Of: Scandinavian journal of economics. Volume 115:Number 1(2013:Mar.)
• Page Start: 211
• Page End: 233
• Publication Date: 2013-01-18
• Subjects: Capital tax competition -- endogenous growth -- imperfect capital mobility; H21 -- H70 -- O40; Economics -- Periodicals; 330.05
• DOI: 10.1111/j.1467-9442.2012.01735.x
• Languages: English
• ISSNs: 0347-0520

Abstract

Abstract: Is tax competition good for economic growth? We address this question using a simple model of endogenous growth. Governments in a system of many small jurisdictions benevolently maximize the welfare of immobile residents. Quadratic (de‐)installation costs limit the mobility of capital. We look at optimal taxation and long‐run growth, and we analyse the effects of cost parameter variations on taxation and growth. A race to the bottom in capital tax rates is only one possibility; the relationship between capital mobility and capital tax rates is not monotonic. Growth and capital mobility are unambiguously positively related.