Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119124
Authors: 
Tanaka, Hiroki
Hidaka, Masahiro
Year of Publication: 
2010
Series/Report no.: 
50th Congress of the European Regional Science Association: "Sustainable Regional Growth and Development in the Creative Knowledge Economy", 19-23 August 2010, Jönköping, Sweden
Abstract: 
We here expand the static tax competition models in symmetric small regions, which were indicated by Zodrow and Mieszkowski (1986) and Wilson (1986), to a dynamic tax competition model in large regions, taking consideration of the regional asymmetry of productivity of public capital and the existence of capital accumulation. The aim of this paper is to verify how the taxation policy affects asymmetric equilibrium based on a simulation analysis using an overlapping generations model in two regions. It is assumed that the public capital as a public input is formed on the basis of the capital tax of local governments and the lump-sum tax of the central government. As demonstrated in related literature, the optimal capital tax rate should become zero when the lump-sum tax is imposed only on older generations, however, the optimal tax rate may become positive when it is imposed proportionally on younger and older generations. In the asymmetric equilibrium, several cooperative solutions can possibly exist which can achieve a higher welfare standard than the actualized cooperative solution either in Region1 or 2.
Subjects: 
Tax competition
Capital taxation
Capital accumulation
Public inputs
Infrastructure
JEL: 
H21
H42
H71
H77
R13
R53
Document Type: 
Conference Paper

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