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Symmetric tax competition and lobbying within federations |
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| Affiliation: | University of Münster, Institute of Economic Education, Scharnhorststr. 100, 48155, Münster, Germany;University of Eastern Piedmont, Department of Humanities, Via G. Ferraris, 116, 13100 Vercelli, Italy;DG ECFIN, European Commission, CHAR 14/233, B-1049 Brussels, Belgium;Faculty of Management and Economics, Ruhr-Universität Bochum, Universitätsstraße 150, 44801, Bochum, Germany;Dept. of Economics, Hallym University, Bongeusangil 22-29, Chuncheon, Gangwon-do 24265, Republic of Korea;Laboratory of Physics, Kochi University of Technology, Tosa Yamada, Kochi 782-8502, Japan |
| Abstract: | The present paper deals with the question of whether tax harmonization and federal taxation increase welfare in a symmetric tax competition framework with heterogeneous individuals and lobbying. A model closely related to the approach of Lai (2010) is linked to externalities that are familiar from conventional public finance. The observed deviations from efficient taxation are derived from the interplay of four externalities, which can be divided into two groups: externalities occurring due to tax competition and externalities which are caused by lobbying. Whether or not the centralization of tax competences is useful depends mainly on the relative sizes of the competition-induced and lobbying-induced externalities. |
| Keywords: | Fiscal federalism Interest groups Political economy Fiscal externalities Tax competition |
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