nach oben

International Tax and Public Finance

Erschienen in:

26.02.2019

Tax competition, unemployment, and intergovernmental transfers

verfasst von: Yuya Kikuchi, Toshiki Tamai

Erschienen in: International Tax and Public Finance | Ausgabe 4/2019

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This paper investigates the relationship among tax competition, the equilibrium efficiency of providing public goods, and intergovernmental transfers, under labor market imperfections. Labor market imperfections cause unemployment-exporting externalities, in addition to fiscal externalities. One of the key points is the unemployment-exporting externality can be either a positive or negative externality. A transfer must internalize these two different externalities to provide public goods efficiently. We consider three specific transfers: tax base equalization, tax revenue equalization, and GDP-based equalization. This paper shows that tax base equalization is more effective than revenue equalization in improving the efficiency of public goods supply if two positive externalities are present. In contrast, tax revenue equalization may be better than tax base equalization if both positive and negative externalities are present. This implies that these two options fail to eliminate the overall external effect in some cases. We demonstrate that in a realistic situation, GDP-based equalization can internalize two different externalities perfectly.

Vorheriger Artikel Switch toward tax centralization in Italy: a wake-up for the local political budget cycle

Nächster Artikel Commodity taxation and regulatory competition

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

Zodrow (2010) and Baskaran and Lopes da Fonseca (2013) provide a survey of the recent literature on tax competition. Devereux et al. (2008) found evidence to show that countries compete over effective marginal tax rates, and that the estimated slopes of reaction functions are consistent with our theoretical predictions.

Sato (2009) also found an unemployment-exporting externality, using a tax competition model with job search. In contrast, Eichner and Upmann (2012) showed that Zodrow and Mieszkowski's results remained true when the labor market is characterized by efficient bargaining.

In the extensive literature on the subject, the work of Figuieres et al. (2004) focuses on the fiscal competition problem. See Boadway (2006) and Boadway and Shah (2007) for a general review of the existing literature.

Based on Köethenbüerger's (2002) theoretical model, Egger et al. (2010) empirically analyzed the incentive effects of equalizing transfers on business tax policy. They showed that transfers had a significant impact on municipalities' tax policy.

These transfers have been examined in the existing literature (Gaigné and Riou 2007) and have been adopted in Australia, Canada, Germany, and other countries (see Köethenbüerger 2002; Dahlby and Warren 2003; Smart 2007; Egger et al. 2010).

We will examine the equilibrium properties in Sect. 4, assuming a large open region.

By definition, \( 0 < \lambda_{i} < 1 \) and \( \sum\nolimits_{i = 1}^{N} {\lambda_{i} = 1} \) hold.

In some countries, taxes on labor income are a major financial source for central and regional governments. Focusing on this point, we should incorporate labor income taxation into our basic model, presented in previous sections. A labor income tax can be used as a lump-sum tax, because residents inelastically supply labor in this model. Furthermore, it is obvious that a labor income tax decreases the distortionary effect of unemployment-exporting externalities. However, regional governments in some countries (e.g., Canada, France, and the UK) are not authorized to change the income tax rate. Therefore, we do not treat this issue explicitly.

On the left side of a Laffer curve, \( K_{i} + \tau_{i} \partial K_{i} /\partial \tau_{i} + \partial T_{i} /\partial \tau_{i} > 0 \) must hold with fiscal transfers or \( K_{i} + \tau_{i} \partial K_{i} /\partial \tau_{i} > 0 \) without fiscal transfers. \( K_{i} + \tau_{i} \partial K_{i} /\partial \tau_{i} > 0 \) should be assumed to ensure the structural stability of our model.

Combining Eq. (12) with Eq. (13), we obtain the optimal tax rate on capital when a lump-sum tax is available. When \( \partial T /\partial \tau = 0 \), it is identical to that derived by Ogawa et al. (2006).

Definitions for the tax base and revenue equalization used in this paper are based on Köethenbüerger (2002, 2005).

Numerous previous studies have assumed (at least) a positive fraction as θ. Beyond the really existing scheme of transfer, it will be worthwhile to ease the parametric restriction 0 ≤ θ ≤ 1. We will provide an extended analysis of this issue in Sect. 4.

This means that the land share is 0.1.

Note that fiscal transfers have no role in equalizing the fiscal resources of regional governments if θ, η, and ψ are negative.

\( \theta > - (1 - \epsilon_{K\tau}) /\epsilon_{K\tau} \) is required to ensure \( \partial g/\partial \tau > 0 \).

Note that \( K_{m} = K_{i} = K \) holds owing to symmetry. The second term in Eq. (32) depends on the term \( (K - K_{m} ) \) and therefore Eq. (32) equals Eq. (18).

Aronsson, T., & Wehke, S. (2008). Public goods, unemployment and policy coordination. Regional Science and Urban Economics, 38, 285–298.CrossRef

Baskaran, T., & Lopes da Fonseca, M. (2013). The economics and empirics of tax competition: A survey, Discussion Papers, Center for European Governance and Economic Development Research, No. 163.

Bettendorf, L., Horst, A. V. D., & De Mooij, R. A. (2009). Corporate tax policy and unemployment in Europe: An applied general equilibrium analysis. World Economy, 32, 1319–1347.CrossRef

Boadway, R. (2006). Intergovernmental redistribute transfers: Efficiency and equity. In E. Ahmad & G. Brosio (Eds.), Handbook of Fiscal Federalism. Northampton: Edward Elgar.

Boadway, R., & Keen, M. J. (1996). Efficiency and the optimal direction of federal-state transfers. International Tax and Public Finance, 3, 137–155.CrossRef

Boadway, R., Marchand, M., & Vigneault, M. (1998). The consequences of overlapping tax bases for redistribution and public spending in a federation. Journal of Public Economics, 68, 453–478.CrossRef

Boadway, R., & Shah, A. (Eds.). (2007). Intergovernmental fiscal transfers: Principles and practices. Washington, DC: The World Bank.

Bradford, D., & Oates, W. (1971). The analysis of revenue sharing in a new approach to collective fiscal decisions. Quarterly Journal of Economics, 85, 416–439.CrossRef

Bucovetsky, S., & Smart, M. (2006). The efficiency consequences of local revenue equalization: Tax competition and tax distortions. Journal of Public Economic Theory, 8, 119–144.CrossRef

Chirinko, R. S., & Wilson, D. J. (2008). State investment tax incentives: A zero-sum game? Journal of Public Economics, 92, 2362–2384.CrossRef

Dahlby, B. (1996). Fiscal externalities and the design of intergovernmental grants. International Tax and Public Finance, 3, 397–412.CrossRef

Dahlby, B., & Warren, N. A. (2003). Fiscal incentive effects of the Australian equalization system. Economic Record, 79, 434–445.CrossRef

Dahlby, B., & Wilson, L. S. (2003). Vertical fiscal externalities in a federation. Journal of Public Economics, 87, 917–930.CrossRef

DePeter, J., & Myers, G. M. (1994). Strategic capital tax competition: A pecuniary externality and a corrective device. Journal of Urban Economics, 36, 66–78.CrossRef

Devereux, M. P., Lockwood, B., & Redoano, M. (2008). Do countries compete over corporate tax rates? Journal of Public Economics, 92, 1210–1235.CrossRef

Djankov, S., Ganser, T., McLiesh, C., Ramalho, R., & Shleifer, A. (2010). The effect of corporate taxes on investment and entrepreneurship. American Economic Journal: Macroeconomics, 2, 31–64.

Egger, P., Koethenbuerger, M., & Smart, M. (2010). Do fiscal transfers alleviate business tax competition? Evidence from Germany. Journal of Public Economics, 94, 235–246.CrossRef

Eichner, T., & Upmann, T. (2012). Labor markets and capital tax competition. International Tax and Public Finance, 19, 203–215.CrossRef

Exbrayat, N., Gaigné, C., & Riou, S. (2012). The effects of labour unions on international capital tax competition. Canadian Journal of Economics, 45, 1480–1503.CrossRef

Feld, L., & Kirchgassner, G. (2002). The impact of corporate and personal income taxes on the location of firms and on employment: Some panel evidence for the Swiss cantons. Journal of Public Economics, 87, 129–155.CrossRef

Feldmann, H. (2011). The unemployment puzzle of corporate taxation. Public Finance Review, 39, 743–769.CrossRef

Felix, R. A. (2009). Do state corporate income taxes reduce wages? Economic Review. Federal Reserve Bank of Kansas City, 94(2), 77–102.

Figuieres, C., Hindriks, J., & Myles, G. D. (2004). Revenue sharing versus expenditure sharing in a federal system. International Tax and Public Finance, 11, 155–174.CrossRef

Gaigné, C., & Riou, S. (2007). Globalization, asymmetric tax competition, and fiscal equalization. Journal of Public Economic Theory, 9, 901–925.CrossRef

Harden, J. W., & Hoyt, W. H. (2003). Do states choose their mix of taxes to minimize employment losses? National Tax Journal, 56, 7–26.CrossRef

Huizinga, H., & Laeven, L. (2008). International profit shifting within multinationals: A multi- country perspective. Journal of Public Economics, 92, 1164–1182.CrossRef

Köethenbüerger, M. (2002). Tax competition and fiscal equalization. International Tax and Public Finance, 9, 391–408.CrossRef

Köethenbüerger, M. (2004). Tax competition in a fiscal union with decentralized leadership. Journal of Urban Economics, 55, 498–513.CrossRef

Köethenbüerger, M. (2005). Leviathans, federal transfers, and the cartelization hypothesis. Public Choice, 122, 449–465.CrossRef

Köethenbüerger, M. (2008). Federal tax-transfer policy and intergovernmental pre-commitment. Regional Science and Urban Economics, 38, 16–31.CrossRef

Kotsogiannis, C. (2010). Federal tax competition and the efficiency consequences for local taxation of revenue equalization. International Tax and Public Finance, 17, 1–14.CrossRef

Oates, W. (1972). Fiscal federalism. New York: Harcourt Brace Jovanovich.

OECD. (2017). Tax policy reforms 2017: OECD and selected partner economies. Paris: OECD Publishing.CrossRef

Ogawa, H., Sato, Y., & Tamai, T. (2004). Unemployment and capital tax competition, Discussion paper No. 04-2, Department of Economic Environment, Graduate School of Environmental Studies, Nagoya University.

Ogawa, H., Sato, Y., & Tamai, T. (2006). A note on unemployment and capital tax competition. Journal of Urban Economics, 60, 350–356.CrossRef

Riedl, A., & Rocha-Akis, S. (2012). How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates. Canadian Journal of Economics, 45, 632–671.CrossRef

Sato, Y. (2009). Capital tax competition and search unemployment. Papers in Regional Science, 88, 749–764.CrossRef

Smart, M. (2007). Raising taxes through equalization. Canadian Journal of Economics, 40(4), 1188–1212.CrossRef

Wildasin, D. E. (1989). Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy. Journal of Urban Economics, 25, 193–212.CrossRef

Wilson, J. D. (1986). A theory of inter-regional tax competition. Journal of Urban Economics, 19, 296–315.CrossRef

Zirgulis, A., & Šarapovas, T. (2017). Impact of corporate taxation on unemployment. Journal of Business Economics and Management, 18, 412–426.CrossRef

Zodrow, G. R. (2010). Capital mobility and capital tax competition. National Tax Journal, 63, 865–902.CrossRef

Zodrow, G. R., & Mieszkowski, P. (1986). Pigou, Tiebout, property taxation, and the underprovision of local public goods. Journal of Urban Economics, 19, 356–370.CrossRef

Titel: Tax competition, unemployment, and intergovernmental transfers
verfasst von: Yuya Kikuchi
Toshiki Tamai
Publikationsdatum: 26.02.2019
Verlag: Springer US
Erschienen in: International Tax and Public Finance / Ausgabe 4/2019
Print ISSN: 0927-5940
Elektronische ISSN: 1573-6970
DOI: https://doi.org/10.1007/s10797-019-09533-0

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 4/2019

Production location of multinational firms under transfer pricing: the impact of the arm’s length principle

Switch toward tax centralization in Italy: a wake-up for the local political budget cycle

Is capital taxation always harmful for economic growth?

Commodity taxation and regulatory competition

Nonlinear and piecewise linear income taxation, and the subsidization of work-related goods

On the incidence of bank levies: theory and evidence