State and local tax competition in a spatial model with sales taxes and residential property taxes |
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| Institution: | 1. Technische Universität Berlin, Chair of Macroeconomics, Strasse des 17. Juni 135, 10623 Berlin, Germany;2. School of Business and Economics, Department of Economics (AE1), Maastricht University, PO Box 616, 6200 MD Maastricht, The Netherlands;3. Freie Universität Berlin, Boltzmannstr. 20, 14195, Berlin, Germany;4. Department of Economics, Universität Hohenheim, 70593 Stuttgart, Germany;1. INRA, UMR1302, SMART Rennes, France;2. CREATE, Laval University, Quebec, Canada;3. Université Jean Monnet-Saint-Etienne, France;4. CNRS-GATE Lyon Saint-Etienne, France;5. CORE, Université catholique de Louvain, Belgium;6. Higher School of Economics, Russia;7. CEPR, United Kingdom |
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| Abstract: | This paper presents a theoretical model with a uniformly populated line that is divided into local jurisdictions (and/or states). If one level of government imposes sales and residential property taxes, and if the spatial extent of each taxing jurisdiction is positive and finite, then (in Nash equilibrium) the sales tax rate is less than residential property tax rate, housing consumption is suboptimal, and the public good is underprovided in each jurisdiction. If a very large state (or country) is divided into local jurisdictions, and if both levels of government choose tax rates endogenously, then under some assumptions there is an efficient outcome. |
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