Municipal Merger under Tax Competition with Debt

This paper analyzes whether municipal merger increases social welfare in a dynamic tax competition model. Though some papers about tax competition show that municipal merger increases social welfare because it terminates tax competition, the analysis finds that a welfare-decrease effect of municipal merger might eclipse a welfare-increase effect of municipal merger since it causes ‘common pool problem’. Another result of this paper shows that social welfare can be recovered employing the policies which reduce the effect from the common pool problem.

1 Introduction

2 Model

3 Benchmark case: Merged municipality throughout both periods

4 Non-municipal merger case

5 The municipal merger case

6 Welfare comparison

7 Discussion and Policy implication

In this section, some options for solving the common pool pro

8 Conclusion

9 Appendix

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