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Fiscal Competition, Capital-Skill Complementarity, and the Composition of Public Spending

Discussion Papers 504, 14 S.

Rainald Borck

2005. Jul.

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Published in: Finanzarchiv 61 (2005), 4, 488-499


Following Keen and Marchand (1997), the paper analyses the effect of fiscal competition on the composition of public spending in a model where capital and skilled workers are mobile while low skilled workers are immobile. Taxes are levied on capital and labour. Each group of workers benefits from a different kind of public good. Mobility of skilled workers provides an incentive for jurisdictions to spend 'too much' on public goods benefitting the skilled and 'too little' on those benefitting low skilled workers. In the case of capital-skill complementarity, this incentive is strengthened. The analysis is then extended to allow for mobility of unskilled labour.

JEL-Classification: H77;J24;J61
Keywords: Tax competition; Capital skill complementarity; Public spending
Frei zugängliche Version: (econstor)