Economics

Effect of agency costs on the optimal matching grant rate in a model of tax competition with benefit spillovers

T. Yang

This study by Tong Yang explores how horizontal fiscal externalities shape the optimal matching grant rate amidst unavoidable agency costs, revealing intriguing dynamics between tax competition and production demand elasticities.

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Playback language: English

Index

Abstract

This study examines the effect of horizontal fiscal externalities on the optimal matching grant rate in a model where agency costs are inevitable. The study finds that the degree of agency costs and benefit spillovers determine the relationship between tax competition and the optimal matching grant rate. If agency costs are relatively small and benefit spillover is zero, the optimal matching grant rate increases with the factors of production demand elasticities. Tax competition may ease inefficiency from agency costs only if the disutility of effort is large enough.

Publisher

Humanities & Social Sciences Communications

Published On

Jul 08, 2020

Authors

Tong Yang

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