Friday, January 29, 2016

[wijkptah] Globalization and income redistribution

Assume a world in which firms can easily move to another country offering more advantageous taxation, e.g., lower corporate income taxes.

A firm might choose to stay in a country with higher taxes only if other benefits outweigh the higher taxes.  This constrains what a government can spend tax revenue on.  What are these constraints?

It cannot spend of public goods, in particular, nonexcludable goods: a firm can move elsewhere and still enjoy the nonexcludable good.  For example, science research.

Government spending on local infrastructure, probably yes.  Education, maybe?

Things that matter: tariffs, costs of transportation, barriers to movement of labor.

Previously similar about redistribution.

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