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Tax Competition, Capital Mobility, and Public Good Provision Within a Trading Block

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  • Panos Hatzipanayotou
  • Costas Hadjiyiannis
  • Michael S. Michael

Abstract

The authors examine a two–country general–equilibrium model of a two–country trading block where governments through tax policies attract mobile capital and provide an imported public consumption good. Within this framework the authors examine, among other things, how preferences over the public good and the size (population) of a country affect the Nash or cooperative equilibrium values of income tax rates in the two countries. The analysis identifies sufficient conditions under which (i) the Nash/cooperative equilibrium income tax rates are strategic substitutes or complements, and (ii) the Nash equilibrium income tax rates may be greater than the cooperative rates.

Suggested Citation

  • Panos Hatzipanayotou & Costas Hadjiyiannis & Michael S. Michael, 2002. "Tax Competition, Capital Mobility, and Public Good Provision Within a Trading Block," Review of International Economics, Wiley Blackwell, vol. 10(3), pages 442-458, August.
    • Handle: RePEc:bla:reviec:v:10:y:2002:i:3:p:442-458
    DOI: 10.1111/1467-9396.t01-1-00342
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    1. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
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    8. Jack Mintz & Henry Tulkens, 2006. "Optimality Properties of Alternative Systems of Taxation of Foreign Capital Income," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 507-532, Springer.
    9. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Munich Reprints in Economics 19402, University of Munich, Department of Economics.
    10. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-892, September.
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    Cited by:

    1. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2004. "Pollution and Capital Tax Competition within a Regional Block," CESifo Working Paper Series 1208, CESifo.
    2. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2014. "Cross-border pollution, public pollution abatement and capital tax competition," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(2), pages 155-178, March.

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