Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/130413 
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper No. 5789
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We extend the literature on local income tax competition by allowing for inter-jurisdictional spillovers and imperfect rivalry in consumption of a publicly provided good. Comparing decentralized second-best results of a theoretical model with an efficient benchmark, we identify three inefficiencies: (1) imperfect redistribution; (2) inter-community free-riding; and (3) an inefficient allocation of the population. We quantify the relative size of these inefficiencies in a numerical implementation of the theoretical model, which reveals that free-riding rises unambiguously in the level of spillovers, whereas the welfare losses from (1) and (3) depend nonlinearly on the levels of spillovers and rivalry.
Subjects: 
publicly provided goods
tax competition
fiscal federalism
decentralization
free-riding
welfare analysis
JEL: 
H21
H40
H77
Q58
Document Type: 
Working Paper
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