Working Paper
Even Small Trade Costs Restore Efficiency in Tax Competition
Johannes Becker, Marco Runkel
CESifo, Munich, 2010
CESifo Working Paper No. 3221
CESifo, Munich, 2010
CESifo Working Paper No. 3221
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.
CESifo Category
Public Finance
Public Finance
Keywords: tax competition, public goods provision, trade
JEL Classification: F230,H250