International Tax and Public Finance

, Volume 13, Issue 2–3, pp 151–161 | Cite as

A Note on Intertemporal Fiscal Competition and Redistribution

  • Kersten Kellermann


This paper studies fiscal competition among jurisdictions in a dynamic framework, where the degree of mobility of private capital across jurisdictions boundaries is perfect. The optimal tax on mobile capital is a source tax that taxes away factor rents. Further we show that taxation of mobile capital can redistribute income in favor of the immobile factor labor. This is because the factor rents generated by public inputs and appropriated by mobile capital exceed the efficient level of public expenditure for investments.


fiscal competition tax competition public inputs source tax capital taxation capital mobility 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Barro, R. J. and X. Sala-i-Martin. (1995). Economic Growth. McGraw-Hill.Google Scholar
  2. Bayindir-Upmann, T. (1998). “Two Games of Interjurisdictional Competition when Local Governments Provide Industrial Public Goods,” International Tax and Public Finance 5, 471–487.CrossRefGoogle Scholar
  3. Feehan, P. (1989). “Pareto-Efficiency with Three Varieties of Public Input,” Public Finance 44, 237–248.Google Scholar
  4. Gerber, R. I. and D. P. Hewitt. (1987). “Decentralized Tax Competition for Business Capital and National Economic Efficiency,” Journal of Regional Science 27, 451–460.Google Scholar
  5. Gramlich, E. M. (1994). “Infrastructure Investment: A Review Essay,” Journal of Economic Literature 32, 1176–1196.Google Scholar
  6. Keen, M. J. and M. Marchand. (1997). “Fiscal Competition and the Pattern of Public Spending,” Journal of Public Economics 66, 33–53.CrossRefGoogle Scholar
  7. Kim, J. and J. D. Wilson. (1997). “Capital Mobility and Environmental Standards: Racing to the Bottom with Multiple Tax Instruments,” Japan and the World Economy 9, 537–551.CrossRefGoogle Scholar
  8. Matsumoto, M. (1998). “A Note on Tax Competition and Public Input Provision,” Regional Science and Urban Economics 28, 465–473.CrossRefGoogle Scholar
  9. Matsumoto, M. (2000). “A Tax Competition Analysis of Congestible Public Inputs,” Journal of Urban Economics 48, 242–259.CrossRefGoogle Scholar
  10. Meade, J. E. (1952). “External Economies and Diseconomies in a Competitive Situation,” Economic Journal 62, 54–67.Google Scholar
  11. Noiset, L. (1995). “Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods: Comment,” Journal of Urban Economics 38, 312–316.CrossRefGoogle Scholar
  12. Noiset, L. and W. H. Oakland. (1995). “The Taxation of Mobile Capital by Central Cities,” Journal of Public Economics 57, 297–316.CrossRefGoogle Scholar
  13. Oates, W. E. (1999). “An Essay on Fiscal Federalism,” Journal of Economic Literature 37, 1120–1149.Google Scholar
  14. Oates, W. E. and R. M. Schwab. (1991). “The Allocative and Distributive Implications of Local Fiscal Competition.” In Kenyon, Daphne A. and Albert Breton (eds.), Competition Among State and Local Governments. Washington D.C., 127–145.Google Scholar
  15. Reiter, M. and A. J. Weichenrieder. (1997). “Are Public Goods Public? A Critical Survey of the Demand Estimates for Local Public Services,” Finanzarchiv 54, 374–408.Google Scholar
  16. Richter, W. F. (1994). “The Efficient Allocation of Local Public Factors in Tiebout's Tradition,” Regional Science and Urban Economics 24, 323–340.CrossRefGoogle Scholar
  17. Richter, W. F. and D. Wellisch. (1996). “The Provision of Local Public Goods and Factors in the Presence of Firm and Household Mobility,” Journal of Public Economics 60, 73–93.CrossRefGoogle Scholar
  18. Sinn, H.-W. (1997). “The Selection Principle and Market Failure in Systems Competition,” Journal of Public Economics 66, 247–274.CrossRefGoogle Scholar
  19. Taylor, L. (1992). “Infrastructural Competition Among Jurisdictions,” Journal of Public Economics 49, 241–259.CrossRefGoogle Scholar
  20. Wellisch, D. (1995). Dezentrale Finanzpolitik bei hoher Mobilität. Tübingen: Mohr.Google Scholar
  21. Wellisch, D. (2000). Theory of Public Finance in a Federal State. Cambridge University Press.Google Scholar
  22. Wildasin, D. E. (2000). “Factor Mobility and Fiscal Policy in the EU: Policy Issues and Analytical Approaches,” Economic policy: A European Forum October, 337–368.Google Scholar
  23. Wildasin, D. E. (2003). “Fiscal Competition in Space and Time,” Journal of Public Economics 87, 2571–2588.CrossRefGoogle Scholar
  24. Wildasin, D. E. and J. D. Wilson. (1996). “Imperfect Mobility of Local Government Behavior in an Overlapping-Generations Model,” Journal of Public Economics 60, 177–198.CrossRefGoogle Scholar
  25. Wildasin, D. E. and J. D. Wilson. (2004). “Capital Tax Competition: Bane or Boon?” Journal of Public Economics 88, 1065–1091.CrossRefGoogle Scholar
  26. Wilson, J. D. (1996). “The Tax Treatment of Imperfectly Mobile Firms: Rent Seeking, Rent Protection, and Rent Destruction,” In R. C. Feenstra, Gene M. Grossman, and Douglas A. Irvin (eds.), The Political Economy of Trade: Essays in Honor of Jagdish Bhagwati. Cambridge, MA: M.I.T. Press.Google Scholar
  27. Zodrow, G. R. (2001). “The Property Tax as a Capital Tax: A Room with Three Views,” National Tax Journal 54, 139–156.Google Scholar
  28. Zodrow, G. R. and P. M. Mieszkowski. (1986). “Pigou, Tiebout, Property Taxation, and the Under-Provision of Local Public Goods,” Journal of Urban Economics 19, 356–370.CrossRefGoogle Scholar

Copyright information

© Springer Science + Business Media, Inc. 2006

Authors and Affiliations

  1. 1.Center of Public FinanceUniversity of FribourgFribourgSwitzerland

Personalised recommendations