Does tax competition really promote growth?
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Does tax competition really promote growth? / Köthenbürger, Marko; Lockwood, Ben.
In: Journal of Economic Dynamics and Control, Vol. 34, No. 2, 2010, p. 191-206.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Does tax competition really promote growth?
AU - Köthenbürger, Marko
AU - Lockwood, Ben
N1 - JEL classification: H77, E62, F43
PY - 2010
Y1 - 2010
N2 - 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 dampens 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 with decentralization.
AB - 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 dampens 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 with decentralization.
KW - Faculty of Social Sciences
KW - uncertainty
KW - stochastic growth
U2 - 10.1016/j.jedc.2009.09.001
DO - 10.1016/j.jedc.2009.09.001
M3 - Journal article
VL - 34
SP - 191
EP - 206
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
IS - 2
ER -
ID: 12236597