|Hendel, Ulrich (2012): The Influence of Altruistic Preferences on the Race to the Bottom of Welfare States. Discussion Papers in Economics 2012-21|
Common tax competition models suggest that welfare states will undercut each other's tax rate to attract taxpayers and keep welfare recipients at bay. This will lead to a zero-taxation outcome in the absence of migration costs or other barriers to migration. This paper develops a two-country framework with mobile altruistic taxpayers and immobile welfare recipients. It shows that under the assumption of taxpayers motivated by warm glow altruism, tax competition leads to unique pure strategy Nash equilibria in taxation which are different from zero given sufficiently strong altruistic preferences. If countries are asymmetric with respect to the number of welfare recipients, pure altruism and inequity aversion preferences support additional unique pure strategy Nash equilibria in which the country with the fewer poor attracts more taxpayers and sets higher taxes. This implies that rich countries may benefit from tax competition.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||tax competition, welfare state, altruism|
Economics > Discussion Papers in Economics
|Subjects:||300 Social sciences > 300 Social sciences, sociology and anthropology|
300 Social sciences > 330 Economics
|JEL Classification:||H73, D64, H20|
|Deposited On:||15. Sep 2012 06:59|
|Last Modified:||15. Sep 2012 07:00|
Alesina, A. F. and P. Giuliano (2009), Preferences for Redistribution, NBER Working Paper No. 14825.
Andreoni, J. (1990), Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving, The Economic Journal, Vol. 100, No. 401, pp. 464-477.
Andreoni, J. and J. Miller (2002), Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism, Econometrica, Vol. 70, No. 2, pp. 737-753.
Bakija, J. and J. Slemrod (2004), Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns, NBER Working Paper No. 10645.
Basinger, S. J. and M. Hallerberg (2004), Remodeling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom, American Political Science Review, Vol. 98, No. 2, pp. 261-276.
Boadway, R., M. Marchand, P. Pestieau, and M. Del Mar Racionero (2002), Optimal Redistribution with Heterogenous Preferences for Leisure, Journal of Public Economic Theory, Vol. 4, No. 4, pp. 475-498.
Bolton, G. E. and A. Ockenfels (2000), ERC: A Theory of Equity, Reciprocity, and Competition, The American Economic Review, Vol. 90, No. 1, pp. 166-193.
Brueckner, J. K. (2000), Welfare Reform and the Race to the Bottom: Theory and Evidence, Southern Economic Journal, Vol. 66, No. 3, pp. 505-525.
Chatelais, N. and M. Peyrat (2008), Are small countries leaders of the European tax competition?, CES Working Paper 2008.58.
Crane, R. (1992), Voluntary income redistribution with migration, Journal of Urban Economics, Vol. 31, No. 1, pp. 84-98.
Cremer, H. and P. Pestieau (1998), Social insurance, majority voting and labor mobility, Journal of Public Economics, Vol. 68, No. 3, pp. 397-420.
- (2004), Factor mobility and redistribution, in Handbook of Regional and Urban Economics, Vol. 4, Amsterdam: North Holland, pp. 2529-2560.
Crumpler, H. and P. J. Grossman (2008), An experimental test of warm glow giving, Journal of Public Economics, Vol. 92, No. 5-6, pp. 1011-1021.
Cummings, R. G., J. Martinez-Vazquez, M. McKee, and B. Torgler (2009), Tax morale affects tax compliance: Evidence from surveys and an artefactual field experiment, Journal of Economic Behavior & Organization, Vol. 70, No. 3.
Dahlberg, M. and K. Edmark (2008), Is there a race-to-the-bottom in the setting of welfare benefit levels? Evidence from a policy intervention, Journal of Public Economics, Vol. 92, No. 5-6, pp. 1193-1209.
van Dalen, H. P. and K. Henkens (2007), Longing for the Good Life: Understanding Emigration from a High-Income Country, Population and Development Review, Vol. 33, No. 1, pp. 37-66.
Dixit, A., G. M. Grossman, and E. Helpman (1997), Common Agency and Coordination: General Theory and Application to Government Policy Making, Journal of Political Economy, Vol. 105, No. 4, pp. 752-769.
Doerrenberg, P., D. Duncan, C. Fuest, and A. Peichl (2012), Nice guys finish last: are people with higher tax morale taxed more heavily?, CGS Working Paper, Vol. 3, No. 2.
Egger, P. and D. M. Radulescu (2009), The Influence of Labour Taxes on the Migration of Skilled Workers, World Economy, Vol. 32, No. 9, pp. 1365-1379.
Ette, A. and L. Sauer (2010), Abschied vom Einwanderungsland Deutschland?, Policy paper for the Bertelsmann Foundation.
European Commission (2009), Eurobarometer-Studie zu Armut und sozialer Ausgrenzung, http://www.2010againstpoverty.eu.
Fehr, E. and K. M. Schmidt (1999), A Theory of Fairness, Competition, and Cooperation, The Quarterly Journal of Economics, Vol. 114, No. 3, pp. 817-868.
Fichte, J. G. (no year), http://www.bk-luebeck.eu/zitate-fichte.html.
Gilardi, F. and F. Wasserfallen (2010), Tax policy discusion: how much competition?, Paper for presentation at the Annual Meeting of the Swiss Political Science Association, Geneva.
Hamburger Abendblatt (2010), Milliardär Hopp fordert höheren Spitzensteuersatz, www.abendblatt.de.
Holzner, C., S. Munz, and S. Übelmesser (2009), Fiskalische Wirkungen der Auswanderung ausgewählter Berufsgruppen, Study for the Sachverständigenrat deutscher Stiftungen für Integration und Migration.
Isaac, R. M. and J. M. Walker (1988), Group Size Effects in Public Goods Provision: The Voluntary Contributions Mechanism, The Quarterly Journal of Economics, Vol. 103, No. 1, pp. 179-199.
Kant, I. (1785), Grundlegung zur Methaphysik der Sitten, http://books.google.de, pp. 56-57.
Kleven, H., C. Landais, and E. Saez (2010), Taxation and International Migration of Superstars: Evidence from the European Football Market, NBER Working Paper No. 16545.
Konrad, K. (2008), Mobile tax base as a global common, International Tax and Public Finance, Vol. 15, pp. 395-414.
Mansoorian, A. and G. M. Myers (1993), Attachment to home and efficient purchases of population in a fiscal externality economy, Journal of Public Economics, Vol. 52, No. 1, pp. 117-132.
Meltzer, A. H. and S. F. Richard (1981), A Rational Theory of the Size of Government, Journal of Political Economy, Vol. 89, No. 5, pp. 914-927.
Ney, P. (2006), Charity as the Perfection of Natural Friendship in Aquinas' Summa Theologiae, Lethbridge Undergraduate Research Journal, Vol. 1, No.1.
OECD (2007), Social Expenditure Database, http://www.oecd.org.
- (2010), Taxing Wages, http://www.oecd.org.
- (2011), Harmonized Unemployment Rates and Levels, http://www.oecd.org.
Orr, L. L. (1976), Income Transfers as a Public Good: An Application to AFDC, The American Economic Review, Vol. 66, No. 3, pp. 359-371.
Palfrey, T. R. and J. E. Prisbrey (1997), Anomalous Behavior in Public Goods Experiments: How Much and Why?, The American Economic Review, Vol. 87, No. 5, pp. 829-846.
Pauly, M. V. (1973), Income redistribution as a local public good, Journal of Public Economics, Vol. 2, No. 1, pp. 35-58.
Razin, A., E. Sadka, and P. Swagel (2002), Tax burden and migration: a political economy theory and evidence, Journal of Public Economics, Vol. 85, No. 2, pp. 167-190.
Schlicht, E. (1998), On Custom in the Economy, Oxford: Oxford University Press.
Sinn, H.-W. (1996), Social insurance, incentives and risk taking, International Tax and Public Finance, Vol. 3, pp. 259-280.
- (2003), The New Systems Competition, Berlin: Blackwell Publishing.
Statistics Norway (2009), Population Statistics. Immigration and Emigration, http://www.ssb.no.
Statistics Sweden (2010), Population and Population Changes 1749-2009, http://www.scb.se.
Thompson, J. P. (2009), Costly Migration and the Incidence of State and Local Taxes, PERI Working Paper No. 251.
Tiebout, C. M. (1956), A Pure Theory of Local Expenditures, Journal of Political Economy, Vol. 64, No. 5, pp. 416-424.
Volden, C. (2002), The Politics of Competitive Federalism: A Race to the Bottom in Welfare Benefits?, American Journal of Political Science, Vol. 46, No. 2, pp. 352-363.
Weichenrieder, A. J. and O. Busch (2007), Delayed integration as a possible remedy for the race to the bottom, Journal of Urban Economics, Vol. 61, No. 3, pp. 565-575.
Wildasin, D. E. (1991), Income Redistribution in a Common Labor Market, The American Economic Review, Vol. 81, No. 4, pp. 757-774.
Wilson, J. D. (1999), Theories of Tax Competition, National Tax Journal, Vol. 52, No. 2, pp. 269-304.
ZDFinfokanal (2010), Der Club der Millionäre, http://infokanal.zdf.de.