Jeffrey D. Petchey

Internationally Mobile Factors of Production and Economic Policy in an Integrated Regional Union of States

There is a general class of model used to examine the expenditure and tax strategies adopted towards mobile factors by states that are members of regional unions (eg., federations, confederations or common markets). We develop a variant of this model, extended to allow for imperfect factor mobility between the region and the world, and characterize a game between states in which tax and expenditure policies are the strategies. It is shown that a Nash equilibrium to this game exists (though there may be multiple equilibria). We also argue that, unlike previous results, states have an incentive to levy non-zero taxes, or subsidies, on the migrant factor (with the precise mix of strategies depending on the degree of factor mobility). Generally, the strategies adopted lead to an inefficient supply of the factor to the region, as well as an inefficient distribution across member states.

State tax and policy competition for mobile capital

We characterise a model in which states engage in tax and policy competition with one another to attract mobile capital. The mix of policies chosen is shown to depend on the interaction between a desire to exploit capital for the benefit of domestic residents (labour) and a net marginal externality generated by capital. It is also argued that competition between states leads to an inefficient supply and geographical distribution of capital within the domestic economy if capital markets are not fully integrated.

A Model for Public Infrastructure Equalization in Transitional Economies

Many transitional economies have a shortage of infrastructure for the provision of public services (e.g. health, education) that are important in developing human capital and increasing the rate of economic growth. Moreover, the regional distribution of the available public capital for the provision of these services is often uneven, implying that citizens also have inequitable access to the public services that are available.

Regional Capital Stock Data for Australia

During recent research on regional public finance issues we developed a version of the perpetual inventory technique for constructing capital stocks, and in conjunction with unpublished and published Australian Bureau of Statistics data, produced capital stock estimates for the National, State and Local components of the General Government Sector by State, broken down into various purposes and sub-purposes (e.g. health and education) for the period 1962 to 1999. This paper outlines the nature of the data set, discusses availability of the data to researchers and emphasises some of the potential applications. JEL classification: H70.

A Dynamic Equalisation Model for Economic and Social Capital Grants with a South African Example

Abstract A capital grant model has been developed which can be used in developing economies to allocate grants to sub-national governments for economic or social capital. The model allows these allocations to happen in a way that increases the value of the capital stock whilst at the same time addresses any inter regional inequities, or economic inefficiencies. The model is also applied to South Africa as an illustrative example and the results of three model simulations for that country are presented. There is a discussion of the data requirements for the model and how it might be replicated by researchers for other economies.

Fiscal Capacity Equalization and Economic Efficiency: The Case of Australia

Central governments in many countries including Canada, Germany, Switzerland, Japan, India, the UK and Australia use fiscal equalization models when distributing grants to sub-national governments. The models used vary somewhat in their precise structure but also share general features. Some, for example the Australian model, estimate the revenue and expenditure needs of sub-national governments in generating the distribution of grant funds while others, such as that used in Canada, estimated only the revenue needs of regions.

Inter-regional transfers and the induced under-taxation of economic rents

ABSTRACT Inter-regional transfers and the induced under-taxation of economic rents. Regional Studies. This paper shows that if taxes on economic rent are assigned to anticipatory first-moving regions and inter-regional transfers are mandated centrally, rents are under-taxed relative to optimal levels. This provides a possible explanation for low rent capture observed in Australia and Canada, two resource-rich federal economies that also have fiscal equalization transfers between regions.

Efficient Environmental Standards with Imperfect Competition

Economists have been concerned that sovereign communities may distort environmental policies to attract mobile capital. This paper provides something of a challenge to this idea. It does so by extending the model of Oates and Schwab (1988) to allow the supply of capital to a state, whether acting independently or strategically as part of a federation, to be less than perfectly elastic due to capital market imperfections. This gives the state an incentive to distort its policies in order to manipulate its domestic capital price relative to the given world return for capital. The key result is to show that the state always prefers to use a dedicated capital tax to achieve its desired domestic price, leaving environmental standards at efficient levels. Only when the state is denied access to a capital tax will it resort to distorting environmental standards. Thus, distortions to environmental standards arise from restrictions on the set of policy instruments rather than non-cooperative behavior or capital mobility per se, at least when the incentive to distort policy arises from capital market imperfections.

Decentralized Emission Standards with Tax Competition

We consider a game between jurisdictions within a national economy. Capital migrates between jurisdictions to satisfy an equal return condition. The total supply of capital to the economy is a non-decreasing function of the national return. This allows us to cater for the case where capital has some home bias and jurisdictions have an incentive to engage in tax competition and set non-zero capital taxes in equilibrium. We then show that this competition does not distort emissions standards and that decentralized provision of environmental policy is locally efficient. Thus, we find no evidence of a race to the bottom or top in emissions standards as a result of tax competition.