commission on fiscal imbalance 合集

1996 feld 1999 empirical evidence at the eu level

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: al as well as empirical issues of fiscal competition from a public choice point of view, illustrated with reference to the Swiss case. 5.3.2. A prisoner’s dilemma framework Fiscal competition may be considered as a regional (cantonal) or local (communal) strategy implemented in order to attract – or to retain – business activities for a number of macroeconomic reasons (basically, to enhance regional economic development and growth, and to curb unemployment). In Switzerland, several French-speaking cantons have 78 Commission on Fiscal Imbalance recently lowered (or planned to lower) their taxation on business profit and capital, a phenomenon occurring also in the German-speaking part of the country. In particular, the cantonal fiscal authorities have adopted a discretionary fiscal policy with respect to firms (and/or their managers), to boost economic development at the local level in terms of output growth and labour market. Indeed, this fiscal strategy may also help Switzerland in improving, and consolidating, its competitive ranking within a globalised economic system. However, failure to co-ordinate such a policy at the general government level leads inevitably to a prisoner’s dilemma situation. In fact, at the fiscal level international co-ordination is non-existent and seems even to be utopian for the time being. Yet, as pointed out by public economic theorists (see Tulkens, 1985), fiscal competition between local governments within the same country does not represent an optimal solution from a political economy standpoint. To be sure, over the long run fiscal competition decreases the tax burden and, therefore, the fiscal revenues of the local governments as a whole. Even if fiscal competition enables to control, and perhaps to limit, the expansion of public sector economics (Pommerehne et al., 1996; Feld, 1999), empirical evidence at the EU level shows that this kind of competition among regions exacerbates structural budgetary deficits and might put the sustainability of government debt at stake (Commission of the European Communities, 1997). Further, according to a recent OECD report, globalisation creates a framework where the number of off-shore places keeps increasing; governments are thus stimulated to implement fiscal strategies in order to attract those business activities which are highly mobile (see Organisation for Economic Co-operation and Development, 1998). At present, fiscal competition between governments aims indeed at limiting the moving of firms – both in terms of plants and capital – towards off-shore places, by decreasing the tax burden on business profits and their managers’ incomes. However, this kind of competition between local governments (but the argument applies to nation-States as well) encompasses a series of drawbacks, namely (i) the risk of diverting profitable trade and investment from the region, (ii) the risk of reducing the revenues of the local government sector considerably, and (iii) the risk of transferring part...
View Full Document

This note was uploaded on 03/06/2013 for the course ECON 220 taught by Professor Paulo during the Spring '13 term at University of Liverpool.

Ask a homework question - tutors are online