Details
| Original language | English |
|---|---|
| Pages (from-to) | 47-61 |
| Number of pages | 15 |
| Journal | Journal of public economics |
| Volume | 168 |
| Early online date | 26 Oct 2018 |
| Publication status | Published - Dec 2018 |
| Externally published | Yes |
Abstract
This paper explores the implications of high indebtedness for strategic tax setting when capital markets are integrated. When public borrowing is constrained due to sovereign default or by a binding fiscal rule, a rise in a country's initial debt level lowers investment in public infrastructure and makes tax setting more aggressive in that jurisdiction, while the opposite occurs elsewhere. On net a jurisdiction with higher initial debt becomes a less attractive location. Our analysis is inspired by fiscal responses in severely hit countries after the economic and financial crisis which are consistent with the theoretical predictions. We find a similar pattern on the sub-national level using administrative data from the universe of German municipalities.
Keywords
- Asymmetric tax competition, Business tax, Inter-jurisdictional tax competition, Sovereign debt
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
Sustainable Development Goals
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In: Journal of public economics, Vol. 168, 12.2018, p. 47-61.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Fiscal competition and public debt
AU - Janeba, Eckhard
AU - Todtenhaupt, Maximilian
PY - 2018/12
Y1 - 2018/12
N2 - This paper explores the implications of high indebtedness for strategic tax setting when capital markets are integrated. When public borrowing is constrained due to sovereign default or by a binding fiscal rule, a rise in a country's initial debt level lowers investment in public infrastructure and makes tax setting more aggressive in that jurisdiction, while the opposite occurs elsewhere. On net a jurisdiction with higher initial debt becomes a less attractive location. Our analysis is inspired by fiscal responses in severely hit countries after the economic and financial crisis which are consistent with the theoretical predictions. We find a similar pattern on the sub-national level using administrative data from the universe of German municipalities.
AB - This paper explores the implications of high indebtedness for strategic tax setting when capital markets are integrated. When public borrowing is constrained due to sovereign default or by a binding fiscal rule, a rise in a country's initial debt level lowers investment in public infrastructure and makes tax setting more aggressive in that jurisdiction, while the opposite occurs elsewhere. On net a jurisdiction with higher initial debt becomes a less attractive location. Our analysis is inspired by fiscal responses in severely hit countries after the economic and financial crisis which are consistent with the theoretical predictions. We find a similar pattern on the sub-national level using administrative data from the universe of German municipalities.
KW - Asymmetric tax competition
KW - Business tax
KW - Inter-jurisdictional tax competition
KW - Sovereign debt
UR - http://www.scopus.com/inward/record.url?scp=85055317875&partnerID=8YFLogxK
U2 - 10.1016/j.jpubeco.2018.10.001
DO - 10.1016/j.jpubeco.2018.10.001
M3 - Article
AN - SCOPUS:85055317875
VL - 168
SP - 47
EP - 61
JO - Journal of public economics
JF - Journal of public economics
SN - 0047-2727
ER -