Technical Report Demographics and tax competition in political economy

Morita, Tadashi  ,  Sato, Yasuhiro  ,  Yamamoto, Kazuhiro

16-13pp.1 - 26 , 2016-05 , Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
We examine possible impacts of demographics on outcomes of capital tax competition in political economy. For this purpose, we develop an overlapping generations model wherein public good provision nanced by capital tax is determined by majority voting. When a population is growing, younger people represent the majority, whereas when a population is decreasing, older people represent the majority. We show that the race to the bottom is likely to emerge in the population growing economy whereas the race to the top might emerge in the population decreasing economy.

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