Part 1 - AL-Tax

Chapter 4This could have interesting consequences for fiscal policy. For example,Kirchgässner and Pommerehne (1996) have suggested that fiscal competition has asignificant effect in Switzerland. However, this competition could be less importantin the European Union, because costs to move are higher.AcknowledgmentsI would like to thank Salvador Barrios, François Boldron, Eloisa Campioni, VidarChristiansen, Clemens Fuest, Nicolas Gravel, Jean Hindriks, Sylvain Latil, Jean-Marie Lozachmeur, Maurice Marchand, Pierre Pestieau, and Eric Strobl for theirremarks, their comments and their help. I want also to thank audiences in Lille,Montpellier, Munich, Stockholm, and Paris for their comments and suggestions.The usual caveats apply.Notes1. A Rawlsian government would the maximize the utility of the least advantaged resident.2. Our model does not generalize that of Hamilton and Pestieau (2001). Both assumptions on strategicbehavior of the government can be justified.3. We take the separation between the two countries as given. Obviously, the merge of the two governmentswould be welfare improving. For a discussion on principals’ separation, see Martimort(1999).4. For a discussion on the revelation principle and exclusive dealing in a more general setting, seePage and Monteiro (2003).5. I thank Nicolas Gravel, who made that point.6. If 1/α goes to 0, the conditions σ 2 ∉ S ~ and σ 2 ∈ [σ ~ ,+[ become equivalent as well.7. The results would be exactly the contrary if we had considered ‘despotic’ governments, i.e. governmentswhich maximize the utility of the richest workers.ReferencesCremer, H., Fourgeaud, V., Leite-Monteiro, M., Marchand, M., and Pestieau, P. (1996). Mobility andRedistribution: A Survey. Public Finance, 51(3):325–352.Gordon, R. (1983). An Optimal Taxation Approach to Fiscal Federalism. Quarterly Journal ofEconomics, 98(4):567–585.Hamilton, J. and Pestieau, P. (2001). Optimal Income Taxation and the Ability to Distribution:Implication for Migration Equilibria. CORE Discussion Paper No. 2002-35.Hamilton, J., Lozachmeur, J.-M. and Pestieau, P. (2002). Rawlsian Government and the Race to theBottom. Economics Bulletin, 8(2):1–6.Hindriks, J. (1999). The Consequences of Labour Mobility for Redistribution: Tax vs. TransferCompetition. Journal of Public Economics, 74(2):215–223.89