Tax Competition and Fiscal Equalization |
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Authors: | Marko Köthenbürger |
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Institution: | (1) CESifo and CES, University of Munich, Schackstr. 4, 80539 Munich, Germany |
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Abstract: | This paper analyzes the relation between tax competition and fiscal equalization. In particular, it asks the question whether fiscal equalization schemes can mitigate inefficient tax competition. Two transfer schemes are considered: tax revenue and tax base equalization schemes. The paper shows that equalizing transfers may internalize fiscal externalities. In particular, in a small open economy tax base equalization yields efficient tax rates. Thus, transfer mechanisms with an explicit redistributive character do not always impair efficiency. |
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Keywords: | capital tax competition fiscal equalization federal system |
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