Keywords: Tax Competition, Economic
Integration, Income Redistribution, Welfare
JEL--Classification:
D78, H23, H77
We study
the implications of increased capital market integration and the associated
increased tax competition for world welfare. We consider a population with
heterogeneous endowments of capital in a model of redistributive politics. We
show that if countries have the same per-capita factor endowments but differ
with respect to the endowments of their decisive voters, autarky may be
socially preferred to integration under any aversion to inequality. We then
reverse this conclusion by assuming that the decisive voters have the same
endowments, but countries are asymmetric. In proving these results, we show
that integration may decrease world output, and increase the utility of the poorest
members of the society.
Copyright © 2000 Anke
Kessler