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| Abstract |
This paper analyzes who should decide the corporation tax rate under the situation in which a local public good has a spillover effect and the central government cannot realize residents’ actual prefe...rence of the public good. This paper makes the following conclusions. When a local government decides the tax rate, it has an incentive to not only decide an inadequate tax rate because of the incentive to free-ride but also an incentive to decide an excessive tax rate because of the tax export effect. As such, because the incentive to decide an excessive tax rate is dominant, the local government decides a tax rate higher than the socially optimal one. With regard to the problem of who should decide the tax rate, this paper demonstrates the following: when the spillover effect is large (small), the local (central) government should decide the corporation tax rate. This result is unlike those in previous studies.show more
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Export Mendeley
DP2010-01