Working Paper: NBER ID: w9334
Authors: Eckhard Janeba; Guttorm Schjelderup
Abstract: Is global competition for mobile capital harmful (less public goods) or beneficial (less government waste)? This paper combines both aspects within a generalized version of the comparative public finance model (Persson, Roland and Tabellini, 2000) by introducing multiple countries and endogenous tax bases. We consider the role of political institutions and compare parliamentary democracies (Europe) and presidential-congressional systems (USA) to show that increasing tax competition is likely to improve voter welfare, even if public good supply decreases because rents to politicians also fall. The conditions for voter welfare to improve are less stringent under the presidential-congressional system than under parliamentary democracies. Increasing tax competition lowers voter welfare if the only benefit to politicians is to divert resources from the government budget and the future is valued highly.
Keywords: No keywords provided
JEL Codes: D72; F02; H11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing tax competition (H26) | improve voter welfare (K16) |
| increasing tax competition (H26) | lower maximum tax revenue (H29) |
| lower maximum tax revenue (H29) | reduce incentives for politicians to divert resources (D72) |
| conditions for improvement in voter welfare are less stringent under presidential-congressional system (D72) | voter utility can increase (D72) |
| tax competition can lower voter welfare if politicians divert resources (D72) | lower voter welfare (D72) |
| opening up the economy (F43) | public good level may fall (H49) |
| public good level may fall (H49) | ambiguous effects on voter utility (D72) |