Grenzen der Äquivalenzbesteuerung im Systemwettbewerb

This paper compares and extends the tax competition analysis of ZODROW and MIESZKOWSKI (1986) and OATES and SCHWAB (1991, 1988). In a dynamic model of a small open economy we show that the efficiency of the tax instruments used to finance productive infrastructure depends on technical properties of the public input. From the view of a local jurisdiction, the efficiency of a capital income tax depends on whether private capital is paid more than or equal its marginal product. Under certain conditions a part of the capital income tax can be used to finance functional redistribution of income from mobile private capital to labour.