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Minimum taxes and repeated tax competition

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  • Áron Kiss

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Abstract

An agreement about a lower bound for admissible tax rates can reduce the equilibrium tax rate (and thus welfare) in tax competition among fully symmetric countries. This is shown in an infinitely repeated game where the stage game describes the standard tax competition model with source-based taxes and symmetric countries. Repeated interaction may allow countries to sustain cooperation through implicit contracts. Lower bounds on tax rates (‘minimum taxes’) restrict the ability of countries to punish deviators. This makes cooperation harder to sustain. The introduction of a lower bound on feasible tax rates may thus harm all countries. Copyright Springer Science+Business Media, LLC 2012

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 19 (2012)
Issue (Month): 5 (October)
Pages: 641-649

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Handle: RePEc:kap:itaxpf:v:19:y:2012:i:5:p:641-649

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: Tax competition; Tax harmonization; Minimum tax; Tax floor; Repeated games; F21; H87;

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References

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  1. Cardarelli, R. & Taugourdeau, E. & Vidal, J.-P., 1999. "A Repeated Interactions Model of Tax Competition," Papiers d'Economie Mathématique et Applications 1999.73, Université Panthéon-Sorbonne (Paris 1).
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Cited by:
  1. Sonja Brangewitz & Sarah Brockhoff, 2012. "Stability of Coalitional Equilibria within Repeated Tax Competition," Working Papers 461, Bielefeld University, Center for Mathematical Economics.
  2. repec:pdn:wpaper:48 is not listed on IDEAS
  3. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer, vol. 21(1), pages 119-152, February.

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