Demographics and Tax Competition in Political Economy

Author Name MORITA Tadashi (Kindai University) / SATO Yasuhiro (University of Tokyo) / YAMAMOTO Kazuhiro (Osaka University)
Creation Date/NO. September 2016 16-E-091
Research Project Spatial Economic Analysis on Trade and Labor Market Interactions in the System of Cities
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We examine the possible impacts of demographics on the 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 economy with growing population whereas the race to the top might emerge in the economy with decreasing population.