Tax Competition, Elastic Labor Supply, and Growth

In this paper we investigate the effects of tax competition in a simple endogenous growth model with elastic labor supply. Our analysis focuses on two issues. First, we show that all taxes, i.e. on capital, labor, and consumption, are harmful for growth. Second, we derive the optimal tax policy. A regional government chooses an inefficiently low tax rate on mobile capital in the presence of tax competition. In contrast, the tax rates on labor income and consumption are always set in order not to distort the consumption-leisure choice.

• Publication year

  2008

• Venue

  Social Science Research Network

• Publication date

  2008-06-01

• Fields of study

  Economics

• Identifiers
  DOI 10.2139/ssrn.1156278
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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