Possibilities of welfare improvement by policy coordination under tax competition

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The results obtained by the projects are as follows :First, welfare effects of interregional income transfer are considered. It is shown that the Shibata-Warr neutrality theorem is held under the Heckscher-Ohlin (HO) model if the difference in relative productivity between private and public sector are the same among countries. Furthermore, it is also shown that the second neutrality theorem due to Shibata is valid under the HO model.Second, the research shows that under international mixed oligopoly, welfare effects of privatisation of the public firm may depend on tax principles. We find that in a mixed oligopoly including one foreign private firm, the privatisation reduces welfare when the government strategically sets the destination based commodity tax. However, in addition to the commodity tax, if the government uses an import tariff as a strategic device, the privatisation increases the welfare. We also show that the welfare effects of privatisation can vary depending on the number of domestic and foreign private firms.Third, we consider the resource allocation under the tax competition in which governments supply the public service to reduce the public bads generating by the private production activities. It is shown that both origin and residence based capital taxes are needed to achieve efficient allocation of capital, and that the welfare may be reduced by the cost reduction of the public sector if the government strategically sets source based capital tax.Finally, we investigate the implication of separation of decision-making structure in the context of decentralization. We compare the extent of decentralization in the separated bureaus case with the extent in the unified bureaus case. We show that unifying bureaus brings higher decentralization and smaller size of central government when only one local government can lobby. However, decentralization is enhanced by separating bureaus under lobbying by both local governments.