Abstract
Models of interjurisdictional tax competition have focused generally on the effects of competition when all indi- viduals are alike. In this paper, individuals differ in their source of income, some being employed in the private sector, and others in the public sector. I show that if individuals are immobile between jurisdic- tions and constrained to remain in their current occupation, then private sector workers prefer head taxes be used in con- junction with subsidies to mobile capital. Public sector workers prefer to set the property tax at that rate which maximizes property tax revenue. If mobility between the public and private sectors is allowed, it is not possible to determine whether the property tax rate is higher or lower than that preferred by private sector workers in the immobility case, though it will never reach the revenue maximizing rate. Moreover, first best allocations of resources may require nonzero property taxation.
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