nash equilibria in models of fiscal competition abstract this paper analyzes nash equilibria in a simple model of an economy with jurisdictions engaging in fiscal competition small number nash equilibria in which tax rates are the strategic variables are shown not to coincide with nash equilibria in which public expenditure levels are the strategic variables

tax competition and revelation of preferences for public expenditure this paper considers a federal country composed of local jurisdictions that differ in their inhabitants tastes for public goods and which finance local public expenditure through a source based tax on capital income the taste for public goods is the private information of local governments the central government seeks an optimal policy in which grants to local governments are conditioned on local tax rates the uninformed central government seeks both to allocate capital efficiently among jurisdictions and to induce jurisdictions to provide an efficient mix of private and public consumption it is shown that there persist at this constrained optimum both some misallocation of capital and some violation of the samuelson rule for optimal public good provision in every jurisdiction c 1998 academic press

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

the spatial effects of wage or property tax differentials and local government choice between tax instruments abstract this paper considers the spatial effects on wages employment and business capital as functions of location of a localized differential in source based wage tax rates or business property tax rates between for example a central city and the surrounding suburbs a simple model is used in which business production uses only labor and capital inputs consumers have fixed residential locations but may commute to work wage and property tax differentials have effects that are similar in some ways but different in other ways if given a choice a local government would choose to set its business property tax rate equal to zero and use only a wage tax

rent seeking and tax competition abstract regional or local governments often appear to favour the interests of those who own land in the region here the implications of this sort of policy making are modelled formally people are assumed perfectly mobile between regions but are assumed to own land only in the region of their birth the nash equilibrium is shown to be efficient if and only if no migration of capital or labour is needed to achieve efficiency otherwise tax competition leads to too little migration voluntary inter regional transfers will never arise in equilibrium despite the inefficiency of the nash equilibrium when there is migration a higher level of government cannot alter the equilibrium if regional governments choose policies simultaneously after the federal government has committed to its policies

competitive tax theory in open economies constrained inefficiency and a pigovian remedy abstract in an economy with multiple governments each is constrained to raise revenue for public expenditures using distortionary taxes on a directly mobile tax base a government is said to be competitive if the total cost of its decisions including the excess burden is perceived to be internalized the competitive equilibrium allocations are not constrained efficient in general there is another set of distortionary taxes and associated public expenditures for which all individuals in the economy are better off it is shown that the source of the failure can be interpreted as a missing market and the form of the best decentralized remedy is derived

courting economic development we show that court enforcement uncertainty hinders economic development using sharp variation in judiciaries across native american reservations in the united states congressional legislation passed in 1953 assigned state courts the authority to resolve civil disputes on a subset of reservations while tribal courts retained authority on unaffected reservations although affected and unaffected reservations had similar economic conditions when the law passed reservations under state courts experienced significantly greater long run growth when we examine the distribution of incomes across reservations the average difference in development is due to the lower incomes of the most impoverished reservations with tribal courts we show that the relative under development of reservations with tribal courts is driven by reservations with the most uncertainty in court enforcement

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

strategic capital tax competition a pecuniary externality and a corrective device abstract d e wildasin journal of urban economics25 193 212 1989 identifies a source of inefficiency in capital tax competition models with price taking jurisdictions and provides a pigovian correction this paper identifies a second source of inefficiency in a non price taking environment when a jurisdiction increases its capital tax it affects the price of capital and thus other jurisdictions returns from trade in capital the pigovian correction to internalize this pecuniary externality is derived since a focus of recent research is on non price taking environments the existence of the pecuniary externality is important in qualifying existing results in the literature

tax competition uniform assessment and the benefit principle abstract in previous discussions it has been argued that tax competition between local governments results in a tax burden on business that is less than the cost of public services for business and in suboptimal levels of public expenditures for residents however this conclusion has never been substantiated by a full theoretical treatment here a theoretical model of tax competition is developed between metropolitan areas with labor perfectly immobile and two local public goods one for residents and one for business for plausible parameter values numerical solutions of the optimality conditions are computed by means of a nonlinear programming algorithm

willingness to pay entrance fees to natural attractions an icelandic case study abstract introducing entrance fees to natural attractions may help counteract the threat of inadequate public funds for site maintenance and management the primary objective of this study is to measure visitors willingness to pay such fees in iceland where no such measurement has previously been undertaken a questionnaire survey based on the contingent valuation method was carried out at two major natural attractions in iceland gullfoss waterfall and skaftafell national park over 92 of the 252 respondents were willing to pay an entrance fee mean amounts and population consumer surplus estimates per season were isk 1 333 and isk 41 million at gullfoss and isk 508 and isk 34 million at skaftafell respectively modest fees would not significantly decrease the demand for these attractions slight differences were found in the willingness to pay according to income attitude towards environmental protection number of previous visits history of paying entrance fees country of residence age and education implications of the empirical study for policy makers and site managers are provided

a spatial model of tax competition with multiple tax instruments abstract this paper presents a model of tax competition with two local jurisdictions in each metropolitan area located along a line segment and many metropolitan areas in the world economy the residents in each local jurisdiction are allowed to commute at a constant cost per mile to work in the other jurisdiction if a lump sum tax can be used then other taxes are not used if source based wage and business capital taxes can both be used then only the former is used in this case or if only a business capital tax can be used the local public good is underprovided

local fiscal competition an application to sales taxation with multiple federations abstract local sales tax rates influence the location of retail activity this paper develops a theory and empirical identification strategy for studying sales tax competition with multiple federations as exemplified by multiple counties each containing several cities in addition to strategic interactions with nearby cities and a city s own county city tax rates are influenced by the tax rates of neighboring counties cities react heterogeneously to own county sales tax rates depending on distance to the county border using data on the driving time to county borders and a comprehensive cross section of local sales tax rates i exploit variation in proximity to county borders to identify vertical fiscal competition cities located near county borders react more intensely to their county s tax rate in comparison to towns at the interior an increase in the neighboring county tax rate raises city tax rates in nearby counties

the demand for casino gaming in this study an econometric model is developed to examine the determinants of the demand for casino gaming specifically the demand for slot machine wagering at riverboats and racinos in addition to examining the effects of traditional demand variables the effect on wagering of variables such as location of a wagering facility and of government restrictions is examined a unique measure of accessibility of market area customers to a facility and to competing facilities was developed the demand for wagering at a facility was found to increase as access by customers in its market area increases and to decrease as access by its customers to competing riverboats racinos or indian casinos increases government restrictions were found to have an adverse effect on wagering at a riverboat on the other hand wagering at a riverboat was found to increase when such restrictions were imposed on competing riverboats the presence of total loss limits and restrictions on boarding times at a riverboat were found

state and local tax competition in a spatial model with sales taxes and residential property taxes abstract this paper presents a theoretical model with a uniformly populated line that is divided into local jurisdictions and or states if one level of government imposes sales and residential property taxes and if the spatial extent of each taxing jurisdiction is positive and finite then in nash equilibrium the sales tax rate is less than residential property tax rate housing consumption is suboptimal and the public good is underprovided in each jurisdiction if a very large state or country is divided into local jurisdictions and if both levels of government choose tax rates endogenously then under some assumptions there is an efficient outcome

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

historical origins of firm ownership structure the persistent effects of the african slave trade this paper uses evidence from the historical african slave trade to extend prior theory linking modern firm ownership structure to institutions and social capital we argue that institutions and so

confiscation by the ruler the rise and fall of jewish lending in the middle ages he power to confiscate is a mixed blessing a ruler who is truly absolute can confiscate from his subjects at will in practice however no ruler is as absolute as the term implies for example a ruler may have to forgo investment projects that would otherwise increase his wealth because his subjects fearing confiscation are reluctant to deal with him and because he is not absolute enough to costlessly force subjects to do so this problem is especially acute when the ruler stands to gain by borrowing from his subjects as bulow and rogoff show a debtor who cannot be penalized for repudiating his debt will repudiate 1 obviously the same applies to an absolute ruler as veitch points out however he will not necessarily repudiate at his first opportunity 2 as long as he expects his future borrowing to exceed his interest payments he gains by waiting what veitch fails to realize is that no lender can operate indefinitely on such a basis and consequently that the ruler will repudiate when the present value of his debt is maximized since repudiation is inevitable it might seem that an absolute ruler would be unable to find willing lenders loans are often repudiated for the more prosaic reason that borrowers lack adequate resources at repayment time lenders may try to avert this outcome by lending only to borrowers who demonstrate that they will be

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

sovereignty credible commitments and economic prosperity on american indian reservations abstract american indian reservations are islands of poverty in a sea of wealth because this poverty cannot be explained solely by natural resource physical and human capital constraints institutions are likely to be part of the explanation one of the institutional variables is the sovereign power of tribes which allows tribal governments to act opportunistically the potential for such opportunistic behavior can thwart economic development if tribes are unable to make credible commitments to stable contract enforcement one avenue for credible commitments is public law 280 which required some tribes to turn judicial jurisdiction over civil disputes to the states in which they reside using data for 1969 99 we find that per capita income for american indians on reservations subject to state jurisdiction grew significantly more than it did for indians who were not

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

the economics of casino gambling america s casino industry expanded rapidly in the 1990s spreading from nevada and atlantic city to mining towns riverboats race tracks and tribal lands and moving from isolated resort settings to urban and suburban venues this article examines economic characteristics of the casino industry including the evolution of major casino markets pricing of gaming products market structures regulatory constraints and social and economic impacts attributable to casinos when competitive casinos show strong economies of scale and scope but many new jurisdictions limit the number or size of operations thus creating substantial economic rents allocation of these rents are fundamentally politically determined

unit tax versus ad valorem tax a tax competition model with cross border shopping abstract within the framework of spatial tax competition with cross border shopping we examine the choice of tax method between ad valorem tax and unit specific tax this study shows that governments endogenously choose the ad valorem tax method not because of a classic welfare reason but because it is a good strategy to compete for mobile consumers another key finding is that while governments are committed to the ad valorem tax method the choice leads to inferior outcome tax cutting competition becomes more serious when countries adopt ad valorem tax and competition in ad valorem tax results in smaller tax revenue than competition in unit tax

interstate commodity tax differentials and the distribution of residents abstract this paper considers the manner in which an unequal distribution of consumers affects the commodity tax policies of neighboring jurisdictions the paper uses a spatial model in which the residents of two states are distributed non uniformly and employs a variety of assumptions about the behavior of governments and firms throughout the paper shows that at a nash equilibrium in tax levels the sparsely populated state imposes a lower tax than does its densely populated neighbor the paper also demonstrates how equilibrium state taxes differ depending on whether firms employ marginal cost or profit maximizing pricing

institutions and casinos on american indian reservations an empirical analysis of the location of indian casinos abstractthis paper empirically investigates the institutional determinants of whether a tribal government invests in a casino i find that the presence of indian casinos is strongly related to plausibly exogenous variation in reservations legal and political institutions tribal governments that can negotiate gaming compacts with multiple state governments because tribal lands span state borders had more than twice the estimated probability 77 versus 32 of operating an indian casino in 1999 tribal governments of reservations where contracts are adjudicated in state courts rather than tribal courts have more than twice the estimated probability 76 versus 34 of investing in an indian casino ceteris paribus these findings suggest that states political pressures and predictable judiciaries affect incentives to invest in casinos this study contributes more generally to the empirical literature on the effects of institutions by providing new evidence that low cost contracting is important fo

tax competition with imperfectly mobile capital abstract this paper considers interjurisdictional tax competition in a two period model with imperfectly mobile capital in the first period capital is perfectly mobile in the second period however capital cannot move perfectly because of transactions costs once employed in a jurisdiction in the first period this imperfect mobility of capital may lead to the overprovision rather than the underprovision of public goods in the second period and may make jurisdictions compete more aggressively for capital in the first period

state contract law and debt contracts abstractthis paper examines the relationship between debt contracts and state contract law we first develop an index to evaluate whether each state s law is favorable or unfavorable to lenders we then analyze how the contract terms the frequency of covenant violations and the repercussions of covenant violations vary across states we find that cash collateral is most likely to be used when the contract is governed by law that is favorable to debtors and that out of state borrowers who use favorable law pay higher yield spreads in addition when the law is favorable to lenders there are significantly fewer covenant violations and the repercussions of covenant violations measured as changes in the borrower s investment policy are more severe we also compare the characteristics of relevant parties across states and the results provide support for the theory that there is a market for contracts similar to the market for incorporations

dynamic fiscal competition a political economy theory abstract i develop a political economy theory of dynamic fiscal competition via public spending and debt with internationally mobile capital strategic policies generate two cross border externalities that voters in each country fail to internalize 1 an increase in public spending that bolsters capital accumulation but also 2 a race to the top in public debt which crowds out capital the relative size of these two externalities varies with the number of financially integrated countries and interacts with the domestic political conflict between young and old voters despite residence based taxation capital tax rates are lower under strategic policies than under coordination furthermore they may decline with financial integration strategic policies lead to lower long run output and welfare relative to coordination but are preferred by subsequent generations of voters if the number of financially integrated countries is low or the political weight of the young is high

an optimal taxation approach to fiscal federalism in a federal system of government each unit of government decides independently how much of each type of public good to provide and what types of taxes and which tax rates to use in funding the public goods in this paper we explore what types of problems can arise from this decentralized form of decision making in particular we describe systematically the types of externalities that one unit of government can create for nonresidents through both its public goods decisions and its taxation decisions the paper also explores briefly what the central government might do to lessen the costs of decentralized decision making

international tax competition and gains from tax harmonization abstract in a world economy there are two types of distortions which can be caused by capital income taxation in addition to the standard closed economy wedge between the consumer saver marginal intertemporal rate of substitution and the producer investor marginal productivity of capital i international differences in intertemporal marginal rates of substitution implying an inefficient allocation of world savings across countries and ii international differences in the marginal productivity of capital implying an inefficient allocation of world investment across countries the paper focuses on the structure of taxation for countries which are engaged in tax competition and on potential gains from a tax harmonization we show that if the competing countries are sufficiently coordinated with the rest of the world then tax competition leads each country to apply the residence principle of taxation and there are no gains from tax harmonization if however there is not sufficient coordination then tax competition leads to low capital income taxes and the tax burden falls on the internationally immobile factors the outcome is nevertheless still efficient relative to the available constrained set of tax instruments

trade capital mobility and tax competition this paper examines a system of governments national state or local that finance public expenditures with taxes on mobile capital e g a property tax unlike previous research on tax competition explicit consideration is given to the general equilibrium determination of the prices at which goods are traded between regions the analysis identifies inefficiencies in government behavior that are not apparent in models in which the terms of trade are exogenously given capital taxation is shown to create an inefficient distribution of public good outputs across regions accompanied by an inefficient pattern of trade a model is presented in which the chosen levels of public good outputs differ across regions containing identical residents and production possibilities there is a wasteful diversity of public good supplies

property taxation nash equilibrium and market power abstract differences in tax policy arise from differences in the number of jurisdictions in a metropolitan area following wildasin 4 and bucovetsky 2 the tax rates in the jurisdictions are determined in a nash game in the tax rate the tax rate and public service level as well as the welfare of residents increase as the number of jurisdictions in the metropolis decreases

tax competition tax exporting and higher government choice of tax instruments for local governments abstract this paper presents a theoretical model with tax exporting due to external ownership of a fraction of the land in each local jurisdiction there are n local jurisdictions in a metropolitan area n 1 and many metropolitan areas in a world economy the paper examines the usage of business property taxes and source based wage taxes by local jurisdictions first in the presence of and then in the absence of residence based lump sum taxes and how this depends on and n the paper then examines the choice of a world national or state government as to whether to allow local metropolitan or sub metropolitan governments to use business property taxes wage taxes or both assuming that the local governments choose the actual tax rates

provision of a pure local public good in a spatial model with many jurisdictions abstract this paper examines the provision of a pure local public good in jurisdictions that are spaced evenly along an infinite line each jurisdiction either supplies the local public good or else its residents travel to another jurisdiction to consume the local public good the equilibrium spacing between jurisdictions which supply the local public good which can be uneven varying between a minimum spacing and a maximum spacing for given exogenous parameters can be greater than equal to or less than the socially optimal spacing

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

taxation of investment and savings in a world economy the equilibrium of capital and equilibrium market prices are derived for a world economy with a unified securities market mobile capital no uncertainty and varying tax rates on different sources of income in each country the paper then characterizes optimal tax rates for a small country in this setting focusing on the peculiar incentives created when the before tax rate of return differs among securities due to differences in their typical tax treatment copyright 1986 by american economic association

mobile labor multiple tax instruments and tax competition abstract the tax competition literature shows that local governments keep property tax rates inefficiently low to prevent capital outflows thereby underproviding local public goods this paper adds mobile labor and an alternative tax instrument to the model jurisdictions have access to a property tax levied on land and capital plus either a head tax or a labor tax scale economies in public good provision create incentives to use the property tax but these incentives are not accompanied by increased incentives to underprovide public goods in contrast underprovision is associated with the use of a distortionary labor tax

casinos crime and community costs we examine the relationship between casinos and crime using county level data for the united states between 1977 and 1996 casinos were nonexistent outside nevada before 1978 and expanded to many other states during our sample period most factors that reduce crime occur before or shortly after a casino opens whereas those that increase crime including problem and pathological gambling occur over time the results suggest that the effect on crime is low shortly after a casino opens and grows over time roughly 8 of crime in casino counties in 1996 was attributable to casinos costing the average adult 75 per year

a three input model of the spatial effects of a central city wage tax abstract this paper considers the short run and long run spatial effects on wages employment and business capital as functions of location of a localized increase in wage tax rates the model is most applicable to a central city that has a higher wage tax rate than the surrounding suburbs the inclusion of land as a third input in production significantly reduces the long run effects of a central city wage tax on employment near the central city boundary as compared with a model in which labor and capital are the only two inputs the short run effects are significantly less than the long run effects

spatial competition between jurisdictions which tax perfectly competitive retail or production centers abstract this paper examines the taxes that jurisdictions choose to impose on perfectly competitive retail centers or production centers within their boundaries retail centers are located on a line and jurisdictions are segments of the line a jurisdiction maximizes the sum of tax revenues and residents consumer surplus the tax chosen by a jurisdiction is a function of the spacing between retail centers the locations of interjurisdictional boundaries and the taxes imposed by neighboring jurisdictions an exporting jurisdiction chooses a positive tax an importing jurisdiction chooses a zero tax even if neighboring jurisdictions have taxes or subsidies if all jurisdictions with retail centers use endogenous fiscal policy then each imposes a positive or zero tax