Does Tax Competition Really Promote Growth?

Marko Koethenbuerger and Ben Lockwood

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper considers the relationship between tax competition and growth in an endogenous growth model where there are stochastic shocks to productivity, and capital taxes fund a public good which may be for final consumption or an infrastructure input. Absent stochastic shocks, decentralized tax setting (two or more jurisdictions) maximizes the rate of growth, as the constant returns to scale present with endogenous growth implies “extreme” tax competition. Stochastic shocks imply that households face a portfolio choice problem, which may dampen down tax competition and may raise taxes above the centralized level. Growth can be lower with decentralization. Our results also predict a negative relationship between output volatility and growth, consistent with the empirical evidence.

Keywords: tax competition; uncertainty; stochastic growth (search for similar items in EconPapers)
JEL-codes: E62 F43 H77 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2007
New Economics Papers: this item is included in nep-cse, nep-mac, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://warwick.ac.uk/fac/soc/economics/research/w ... s/2008/twerp_810.pdf

Related works:
Journal Article: Does tax competition really promote growth? (2010)
Working Paper: Does Tax Competition Really Promote Growth? (2007)
Working Paper: Does Tax Competition Really Promote Growth? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:810

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