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On the Sustainability of Partial Tax Harmonization among Asymmetric Countries

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  • Jun-ichi Itaya

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  • Makoto Okamura
  • Chikara Yamaguchi
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    Abstract

    This paper investigates the conditions under which partial harmonization for capital taxation is sustained in a repeated interactions model of tax competition when there are three countries asymmetric in repect to their capital endowments. We show that regardless of the structure of the coalition (i.e., any group of asymmetric countries), whether partial tax harmonization is sustainable or not crucially depends on the capital endowment of the median country relative to those of the large and small countries. The most noteworthy finding is that the closer the capital endowment of the median country to the average capital endowment of the large and small countries, the less likely is the tax harmonization including the median country to prevail and the more likely is the partial tax harmonization excluding the median country to prevail

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    File URL: http://cbe.anu.edu.au/research/papers/pdf/wp540.pdf
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    Bibliographic Info

    Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2011-540.

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    Length: 38 Pages
    Date of creation: Mar 2011
    Date of revision:
    Handle: RePEc:acb:cbeeco:2011-540

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    1. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    2. Konrad, K.A. & Schjelderup, G., 1998. "Fortress Building in Global Tax Competition," Papers 17/98, Norwegian School of Economics and Business Administration-.
    3. John B. Burbidge & James A. DePater & Gordon M. Myers & Abhijit Sengupta, 1996. "A Coalition-formation Approach to Equilibrium Federations and Trading Block s," Department of Economics Working Papers 1996-05, McMaster University.
    4. Itaya, Jun-ichi & Okamura, Makoto & Yamaguchi, Chikara, 2008. "Are regional asymmetries detrimental to tax coordination in a repeated game setting?," Journal of Public Economics, Elsevier, vol. 92(12), pages 2403-2411, December.
    5. Peralta, Susana & van Ypersele, Tanguy, 2003. "Coordination of Capital Taxation Among Asymmetric Countries," CEPR Discussion Papers 3695, C.E.P.R. Discussion Papers.
    6. Cardarelli, Roberto & Taugourdeau, Emmanuelle & Vidal, Jean-Pierre, 2002. " A Repeated Interactions Model of Tax Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 19-38.
    7. Catenaro, Marco & Vidal, Jean-Pierre, 2003. "Implicit tax co-ordination under repeated policy interactions," Working Paper Series 0259, European Central Bank.
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