Tax Competition Reconsidered
Working Paper No. 06-W02
Amrita Dhillon, Myrna Woders, and Ben Zissimos
ABSTRACT [article]
In a classic model of tax competition, we show that the level of public good provision and taxation in a decentralized equilibrium can be efficient or inefficient with either too much, or too little public good provision. The key is whether there exists a unilateral incentive to deviate from the efficient state and, if so, whether this entails raising or lowering taxes. A priori, there is no reason to suppose the incentive is in either one direction or the other.
Keywords and Phrases: Efficiency, Nash equilibrium, over-provision, tax competition, under-provision
JEL Classification Numbers: C72, H73, H21, H42, R50