Even Small Trade Costs Restore Efficiency in Tax Competition

16 Pages Posted: 27 Oct 2010

See all articles by Johannes Becker

Johannes Becker

University of Cologne

Marco Runkel

University of Munich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 26, 2010

Abstract

We introduce transport cost of trade in products into the classical Zodrow and Mieszkowski (1986) model of capital tax competition. It turns out that even small levels of transport cost lead to a complete breakdown of the seminal result, the underprovision of public goods. Instead, there is a symmetric equilibrium with efficient public goods provision in all jurisdictions.

Keywords: tax competition, public goods provision, trade

JEL Classification: H25, F23

Suggested Citation

Becker, Johannes and Runkel, Marco, Even Small Trade Costs Restore Efficiency in Tax Competition (October 26, 2010). CESifo Working Paper Series No. 3221, Available at SSRN: https://ssrn.com/abstract=1697991 or http://dx.doi.org/10.2139/ssrn.1697991

Johannes Becker (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Marco Runkel

University of Munich - Department of Economics ( email )

Schackstr. 4
Munich, 80539
Germany
++49 (0) 89 2180 6339 (Phone)
++49 (0) 89 2180 3128 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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