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Urban Studies, Vol. 45, No. 3, 651-657 (2008)
DOI: 10.1177/0042098007087339
© 2008 Urban Studies Journal Limited

A Note on the Dynamic Analysis of Fiscal Competition

Toshiki Tamai

Graduate School of Economics, Nagoya University, Furo-Cho, Chikusa-ku, Nagoya 464-8601, Japan, tamai{at}soec.nagoya-u.ac.jp

This note presents an analysis of dynamic aspects of fiscal competition in a model with local capital accumulation. This shows that, even when a head tax is available, the optimal capital tax rate is generally non-zero. In addition, a decentralised equilibrium without a head tax might be characterised by overprovision of local public goods in a dynamic fiscal competition model. The source of inefficiency is overaccumulation of local capital.


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