Bulletin n. 2-3/2012 | ||
October 2012-February 2013 | ||
Eichner Thomas, Runkel Marco |
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Interjurisdictional Spillovers, Decentralized Policymaking, and the Elasticity of Capital Supply | ||
in American Economic Review , Vol. 102, No. 5, August 2012 , 2012 , 2349–57 | ||
This paper points to the important role that the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of policymaking in a decentralized economy with mobile capital and spillovers among jurisdictions. In accordance with previous studies, we show that under the assumption of a fixed capital supply (zero capital supply elasticity) the decentralized policy choice is optimal. If the capital supply elasticity is strictly positive, however, capital tax rates are inefficiently low in the decentralized equilibrium. | ||