The name is absent

Table 1. Simulated effects of tax competition

Calibration: δ = 0.12, σ_c = σg

5, β = 0.25, θ = 1, k = 0.1, A = 0.1.

sector (and a realistic effective capital income tax rate τ/ (r + τ)), we obtain the
simulation results reported in Table 1.¹⁶ The last column shows the change in the
level of social welfare relative to the welfare level SW^a attained under autarky,
and the first row in the table shows the situation prevailing under autarky.

The second column in the table shows that the elasticity of the tax base gradu-
ally increases with the number of competing jurisdictions. As tax competition
grows more intense, the relative public sector wage rate W/w gradually declines,
and when the number of jurisdictions becomes sufficiently large, rents are com-
pletely eliminated, i.e., the recruitment constraint W ≥ w becomes binding. Tax
competition also reduces the size of the public sector, but not dramatically so,
since our assumed values of σc and σg imply a relatively low degree of substitut-
ability between public and private goods.

Notice the interesting profile of the welfare change in the last column in Table
1: as the number of countries rises from one to some small number, social wel-

¹⁶ The complete model implied by the specifications (3.5) and (3.6) is documented in a sup-
plementary appendix available from the authors.

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