Discussion Papers 2016

CIRJE-F-1012

"Demographics and Tax Competition in Political Economy"

Author Name

Morita, Tadashi, Yasuhiro Sato and Kazuhiro Yamamoto

Date

May 2016

Full Paper

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Remarks

Subsequently published in International Tax and Public Finance 27, 865-889 (2020).

Abstract

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 financed 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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