The name is absent



The Effects of Tax Competition
When Politicians Create Rents
to Buy Political Support

Wolfgang Eggertt and Peter Birch S0rensent

4th December 2007

Abstract

We set up a probabilistic voting model to explore the hypothesis that
tax competition improves public sector efficiency and social welfare. In
the absence of tax base mobility, distortions in the political process induce
vote-maximising politicians to create rents to public sector employees. Al-
lowing tax base mobility may be welfare-enhancing up to a point, because
the ensuing tax competition will reduce rents. However, if tax competi-
tion is carried too far, it will reduce welfare by causing an underprovision
of public goods. Starting from an equilibrium where tax competition
has eliminated all rents, a coordinated rise in capital taxation will al-
ways be welfare-improving. For plausible parameter values it will even be
welfare-enhancing to carry tax coordination beyond the point where rents
to public sector workers start to emerge.

JEL classification: D72, H73, H87

Keywords: tax competition, rent seeking, probabilistic voting.

Address for correspondence:

Peter Birch S0rensen

Department of Economics, University of Copenhagen
Studiestraede 6, 1455 Copenhagen K, Denmark
E-mail:
[email protected]

^University of Paderborn and CESifo.

+University of Copenhagen, EPRU and CESifo.



More intriguing information

1. GENE EXPRESSION AND ITS DISCONTENTS Developmental disorders as dysfunctions of epigenetic cognition
2. Foreign direct investment in the Indian telecommunications sector
3. The name is absent
4. The name is absent
5. The name is absent
6. The name is absent
7. The name is absent
8. Research Design, as Independent of Methods
9. Optimal Private and Public Harvesting under Spatial and Temporal Interdependence
10. The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data
11. Automatic Dream Sentiment Analysis
12. Endogenous Determination of FDI Growth and Economic Growth:The OECD Case
13. Ruptures in the probability scale. Calculation of ruptures’ values
14. Evolutionary Clustering in Indonesian Ethnic Textile Motifs
15. The name is absent
16. Une Classe de Concepts
17. Modelling Transport in an Interregional General Equilibrium Model with Externalities
18. How does an infant acquire the ability of joint attention?: A Constructive Approach
19. Developing vocational practice in the jewelry sector through the incubation of a new ‘project-object’
20. The effect of classroom diversity on tolerance and participation in England, Sweden and Germany