Discussion Paper

No. 2013-31 | May 17, 2013
Tax Competition and Determination of the Quality of Public Goods

Abstract

In this paper, the authors analyze the behavior of local governments on capital taxation when the financial choices in terms of a public good quality are done by a central planner. More specifically, they ask the question whether a local government has an interest to tax the mobile factor in addition to the tax on representative households or not. The authors show, through a comparison of social welfare given the strategies chosen by the locals governments, that whatever the quality of the public good and its cost is, a local government always has an interest to tax the mobile factor. This leads to a Nash-equilibrium in dominant strategy in their model.

JEL Classification

H70 H71 H20 H41 D00

Cite As

A.H. Ould Abdessalam and Eric Kamwa (2013). Tax Competition and Determination of the Quality of Public Goods. Economics Discussion Papers, No 2013-31, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-31

Assessment



Comments and Questions


Anonymous - referee report 1
June 19, 2013 - 10:40

see attached file


A.H. Ould Abdessalam - Reply to Referee Report 1
July 22, 2013 - 10:23

see attached file


Anonymous - referee report 2
June 25, 2013 - 08:45

see attached file


A.H. Ould Abdessalam - Reply to Referee 2
July 13, 2013 - 01:22

As you pointed out, the assumptions made on the form of the utility function and of the tax options offered to local governments can be seen as more restrictive. They were made for matter of simplicity since in the literature, there are diverse way to settle the framework. By concluding ...[more]

... the paper, we mentioned that what you pointed out (the form of the utility function and that of the tax options) constitute some limits of our work and proposed for further work to see how our results may vary with others form of utility functions in order to draw accurate and general results.

A more explicit and detailed reply is attached as pdf.