Strategic Tax Competition: An Experimental Study
AbstractWe study the effect of a payoff advantage, symmetric payoff change and policymakers interaction on choices in tax competition games. To examine the first two effects a standard symmetric game is respectively compared to an asymmetric game where one player has a payoff advantage and to another symmetric game where both players have symmetrically higher payoffs. When payoffs are asymmetric, we find that if policymakers have a payoff disadvantage they are more likely to compete. Instead policymakers with a payoff advantage are keener to tax above equilibrium. Our results also show there is a payoff size effect where choices are brought closer to equilibrium when payoffs are symmetrically higher. These two effects are further studied when players interact repeatedly. With repeated interaction cooperation is sustained only in the symmetric games but fail to materialise in the asymmetric game. A regression analysis of our results reveals further differences between these games.
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Bibliographic InfoPaper provided by International Centre for Behavioural Business Research in its series ICBBR Working Papers with number 5.
Date of creation: 08 Oct 2009
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Tax Competition; Experimental Economics; Asymmetry.;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-17 (All new papers)
- NEP-EXP-2009-10-17 (Experimental Economics)
- NEP-GTH-2009-10-17 (Game Theory)
- NEP-MIC-2009-10-17 (Microeconomics)
- NEP-PBE-2009-10-17 (Public Economics)
- NEP-URE-2009-10-17 (Urban & Real Estate Economics)
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