40 Questions
What is a possible scenario in which the smaller country has a higher per capita utility in the non-coordinated equilibrium compared to under coordinated capital tax rates?
When the smaller country is small enough relative to other players, it can deviate from the coordinated equilibrium and charge a lower tax, which leads to a higher per capita utility.
How do investors view taxes in relation to publicly provided infrastructure?
Investors see taxes as the price that must be paid for the publicly provided infrastructure, which is known as benefit taxation.
What is a potential issue that may arise if capital is more responsive to public inputs than to taxes?
Overprovision of infrastructure may occur.
What is the concept that gives rise to rents that may be taxed, according to Baldwin and Krugman (2004)?
Agglomeration externalities.
What is the phenomenon in which voters use other jurisdictions as a yardstick to evaluate the fiscal performance of their own government?
Yardstick competition.
What determines whether the tax base externality or the yardstick spillovers dominate in tax competition?
The initial conditions.
How does the marginal cost of public funds affect the provision of public goods?
It influences the optimal level of public goods provision, as a higher marginal cost of public funds may lead to underprovision or overprovision of public goods.
What is the concept that measures the responsiveness of the tax base to changes in tax rates?
Tax base elasticity.
What is the marginal rate of substitution in the context of public goods provision?
The marginal rate of substitution is the marginal willingness to pay for public consumption.
What is the marginal cost of public funds (MCPF) and what does it measure?
The MCPF measures how much private consumption has to be sacrificed in order to raise one additional unit of tax revenues.
What is the relationship between the tax base elasticity (✏k,t) and the marginal cost of public funds (MCPF)?
The tax base elasticity (✏k,t) is positively related to the MCPF.
What is the consequence of inefficiently low public good provision in a situation of symmetric tax competition with source-based capital taxes?
It leads to a 'race to the bottom' where countries tend to underprovide public goods and have low capital tax rates.
What is the implication of Proposition 2 on the efficiency of public goods provision?
It implies that public goods provision is inefficiently low and capital tax rates are also inefficiently low in a situation of symmetric tax competition with source-based capital taxes.
What is the difference between the marginal rate of substitution and the marginal cost of public funds?
The marginal rate of substitution represents the marginal willingness to pay for public consumption, while the marginal cost of public funds represents the opportunity cost of raising tax revenues.
What is the role of the tax base elasticity (✏k,t) in the marginal rate of substitution equation?
The tax base elasticity (✏k,t) is a distortion term that affects the marginal rate of substitution.
What is the consequence of a higher tax base elasticity (✏k,t) on the efficiency of public goods provision?
A higher tax base elasticity leads to a more severe underprovision tendency of public goods.
What is the optimal level of taxes and public goods provision, assuming a regional government levies a source-based capital tax and uses the tax revenue to provide a local public good?
The optimal level of taxes and public goods provision is achieved when the marginal benefit of the public good equals the marginal cost of taxation.
What is the condition for production efficiency in a regional government that levies a capital tax and provides a local public good?
Production efficiency is achieved when marginal utility of consumption equals marginal utility of the public good (uc = ug).
What is the relationship between the tax rate and the provision of public goods in a regional government?
One unit of tax revenue is used to provide one unit of public good (tk = g).
What is the objective of a regional government in a tax competition setting?
The government's objective is to maximize the utility of the citizens, taking into account the reaction of the interest rate and regional capital demand.
What is the first-order condition for the optimal tax rate in a regional government?
The first-order condition is given by uc(@k/@t) + ug(@g/@t) = 0.
What is the effect of a reduction in the public good on private consumption?
A reduction in the public good leads to an increase in private consumption.
What is the relationship between the tax rate and capital demand in a regional government?
The tax rate affects the capital demand, as a higher tax rate reduces the attractiveness of the region for capital investment.
What is the concept that describes the decrease in the tax base in response to an increase in the tax rate?
The concept is called tax base elasticity.
What is the theoretical prediction regarding the relationship between jurisdiction size and externality internalization in tax competition?
Small jurisdictions internalize less of the externality, while large jurisdictions internalize more.
Under what condition can tax competition lead to welfare improvement, according to Bruelhart and Jametti (2019)?
If smallness is positively correlated with tax rates in jurisdictions with relatively benevolent governments, and this relationship turns negative for relatively less benevolent governments.
How does the size of a jurisdiction affect its aggressiveness in tax competition, according to theory?
Small jurisdictions engage more aggressively in tax competition, while large jurisdictions engage less aggressively.
What is the consequence of smallness exacerbating externalities in tax competition?
It leads to more aggressive tax competition and potential welfare losses.
What is the role of the Leviathan in the context of tax competition, according to Bruelhart and Jametti (2019)?
The Leviathan refers to a relatively less benevolent government that may engage in more aggressive tax competition.
How does the provision of public goods relate to tax competition, according to the theory?
The provision of public goods is affected by the tax base externality, which can lead to underprovision or overprovision of public goods.
What is the relationship between the marginal cost of public funds and tax competition?
The marginal cost of public funds can affect the level of tax competition, as higher costs may lead to more aggressive tax competition.
How does tax base elasticity relate to tax competition, according to the theory?
Tax base elasticity measures the responsiveness of the tax base to changes in tax rates, which can affect the level of tax competition.
In the context of tax competition, how does the size of a country affect its tax elasticity of capital?
The smaller the country, the higher the tax elasticity of capital.
According to Proposition 3, what is the relationship between country size and capital tax rates in an asymmetric Nash equilibrium?
The smaller country levies a lower capital tax rate.
How do asymmetric countries differ in their response to tax changes, according to the model?
Smaller countries have a larger reduction in capital stock following a domestic tax increase.
What is the implication of a higher tax elasticity of capital for a country's behavior in tax competition?
The country will engage more aggressively in tax competition.
In the context of public goods provision, how do differences in country size affect the provision of public goods?
Larger countries may provide more public goods due to their larger population and tax base.
What is the relationship between the marginal cost of public funds and the provision of public goods?
A higher marginal cost of public funds leads to a lower provision of public goods.
How does the tax base elasticity affect a country's behavior in tax competition?
A higher tax base elasticity makes a country more aggressive in tax competition.
What is the implication of a coordinated capital tax rate on the provision of public goods?
It can lead to a higher provision of public goods.
Test your understanding of optimal taxation and public goods provision. Learn how regional governments levy taxes and provide local public goods, and how efficiency is achieved in production and allocation. Practice questions on marginal utility, MRS, and MRT.
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