EFFICIENT TAX EXPORTING

In a multijurisdiction economy with free mobility of households between communities, some portion of any community's tax is incident upon non-resident landowners. It is shown that when the objective of a community is taken to be the level of satisfaction of its residents, a fully efficient allocation is a (Nash) equilibrium of the decentralized game. In general, no local tax structure that restricts a community's tax base to residents can attain the optimum; thus tax exporting is necessary for independent local government behaviour to be consistent with efficiency.