F2008 - Tax Coordination and Economic Performance: Government Budget, Distribution, and the Welfare State

Austrian Science Fund

This working package analyses the effect of tax competition on the structure of tax revenues and public spending, and discusses the social and distributional consequences. The convergence hypothesis argues that the competition among governments to attract the mobile factor of production (i.e. capital) leads to tax and fiscal competition and an erosion of the welfare state. On the contrary, the compensation hypothesis argues that governments expand the welfare state to insure citizens against the increased economic risk due to globalisation.