Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/76284 
Year of Publication: 
2003
Series/Report no.: 
CESifo Working Paper No. 943
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper examines capital tax competition in the presence of an interstate transfer policy without federal commitment. Lack of commitment implies that tax policy is chosen prior to federal transfers. The paper's main result is that ex-post federal policy internalizes horizontal fiscal externalities, insulating tax policy from capital mobility. Federal policy, however, introduces a new source of inefficiency unrelated to tax competition. Specifically, ex-post transfer payments prove to be equivalent to an interstate revenue-sharing system which may render federal intervention in the presence of fiscal externalities welfare-deteriorating relative to tax competition.
Subjects: 
federalism
capital tax competition
commitment
soft budget constraints
Document Type: 
Working Paper
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