Fiscal Competition or Harmonization? Some Reflections
Posted: 7 Mar 2002
Economic competition among governments, making use of both fiscal and regulatory policy instruments, is the subject of great concern on both sides of the Atlantic, for fear that it gives rise to a "race to the bottom" resulting in levels of public services that are too low. This paper explores the theoretical and empirical foundations for this claim. The literature is a large, rich, and complex one that, while perhaps inconclusive, provides some valuable insights into the nature of the issue. The case for harmonizing measures to restrain fiscal competition is not wholly compelling; there remains, in fact, a good case for the benefits from such competition.
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