adjust. Note first that
>
(tc,τc)
.
1 + ' (tN ,τN )
(15)
To verify the inequality note that the SMCPF is independent of τ since flk ≡ 0 and thus kτi ≡ 0.
Also, the SMCPF is higher the higher the level of symmetrically chosen capital taxes, because
kii ∣(tc τc) = kii ∣(tN τN) and hence tckii ∣(tc τc) < tNkii ∣(tN τN). Followingthefirst-Ordercondition
b0(дг) = i+i (Eq∙ (9)) the inequality (15) implies
b0(gi)∣(tc,τc) > b0(gi)∣(tN,τN)
By the strict concavity of b(gi), we can conclude that gi decreases relative to the Nash-level, i.e.
Public consumption becomes more downward distorted in the centralized leadership game.
A lower amount of labor-tax financed transfers exposes public consumption levels more to states’
incentives to compete for mobile capital - with the familiar consequence of a downward distortion
in public consumption.
In equilibrium, the total amount of tax revenues decreases, but taxes are more efficiently
collected. In spite of the efficiency trade-off, the welfare effect is ambiguous in sign. The federal
government is able to replicate the policy outcome under Nash-behavior by setting τc = τN .
Consequently, revealed by the policy preference of the federal government (τc < τN), welfare
improves relative to welfare under Nash behavior.
6 Sequential Policy Choice: Pre-Commitment by State Govern-
ments
In this section, states governments have the ability to pre-commit toward the federal government
(decentralized leadership). The sequence of decisions becomes:
16
More intriguing information
1. A Regional Core, Adjacent, Periphery Model for National Economic Geography Analysis2. The name is absent
3. Auctions in an outcome-based payment scheme to reward ecological services in agriculture – Conception, implementation and results
4. The name is absent
5. CAN CREDIT DEFAULT SWAPS PREDICT FINANCIAL CRISES? EMPIRICAL STUDY ON EMERGING MARKETS
6. Evolution of cognitive function via redeployment of brain areas
7. The name is absent
8. EMU's Decentralized System of Fiscal Policy
9. The name is absent
10. The name is absent