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Pitsoulis, Athanassios
Siebel, Jens Peter
Year of Publication: 
Series/Report no.: 
Ordnungspolitische Diskurse 2009-13
We connect the theories of strategic debt and tax competition in a model and explore whether capital mobility coupled with a strategic debt effectively tames Leviathan. Our proposition is that in the case of a small open economy international tax competi-tion for mobile capital opens the way to a previously unexplored sort of strategic deficit. The incumbent conservative government builds a reelection strategy on the downwards pressure on mobile factor tax rates caused by tax competition the liberal successor will be exposed to. As a result it can raise its chances to be reelected by tying the successor's hands on expenditure issues.
Structure and Scope of Government
State and Local Budget and Expenditures
Interjurisdictional Differentials and Their Effects
Document Type: 
Working Paper
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