A Note on Tax Competition and Leviathan

The central purpose of this paper is to determine the effect of interjurisdictional competition for capital on public decisions of Leviathan-type policymakers who are also concerned with re-election. We show that the supply of public goods is (in)efficient in a Nash-equilibrium when such policy-makers (do not) use freely their tax instruments. Moreover, tax instruments choices depend on the assumption concerning capital ownership. When the local stock of capital is owned by residents, policy-makers are not likely to use the tax on capital while absentee ownership leads them to use it as tax exporting allows them to increase their rents