Fiscal competition and public debt Eckhard Janeba, Maximilian Todtenhaupt
By: Janeba, Eckhard
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Contributor(s): Todtenhaupt, Maximilian.
Material type: 
ArticlePublisher: 2018Subject(s): COMPETENCIA FISCAL NOCIVA | DEUDA PUBLICA | NEGOCIOS MERCANTILES | IMPUESTOS
In:
Journal of Public Economics v. 168, December 2018, p. 47-61Summary: 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.
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Disponible únicamente en formato PDF en el repositorio de la Biblioteca del IEF con el nombre: 0730-2018-168JAN.
Resumen.
Bibliografía.
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.
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