The name is absent

coordination allows individual countries to raise more revenue, politicians will
therefore want to spend all of the increased revenue on expanding public sector
employment, apart from any revenue that may be needed to continue satisfying
the recruitment constraint. ¥

Proof of Proposition 5: Using (2.11) and (2.15), the social welfare function (2.5)
may be written as

SW = αu (W + rk) + (1 — a) u (w (r + τ) + rk) + g (a) ,

which may be differentiated to give (using w⁰ = — k and the fact that (1 — α) k = k

in symmetric equilibrium):

= 0 initially

da ₀ dW -

• dτ ^{+ a}ug ∙ ɪ ^{+ ak}

dr
dτ

0   Z“}|“{

g⁰ + ug — up

Inserting (4.3) through (4.5) into (A.31) and remembering that u_g = u_p, u⁰_g = u⁰_p

and dW = dw initially, we find by using w = FL that

_

∖2

a)

ε (1 — a)²

wa

u⁰kε (1 — a)²
a² + ε (1 — a)²

Equation (A.32) shows that the welfare gain from tax coordination is proportional

to the initial degree of underprovision of public goods, f g-/u-

by the deviation from the Samuelson condition which requires g-/u- = 1. From

Proposition 3 we know that equation (3.4) must hold in the initial tax competition
equilibrium. Inserting this expression for ^g^^u- into (A.32), we finally obtain

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