Tax Competition, Relative Performance and Policy Imitation
AbstractRather than about absolute payoffs, governments in fiscal competition often seem to care about their performance relative to other governments. Moreover, they often appear to mimic policies observed elsewhere. We study such behaviour in a tax competition game with mobile capital à la Zodrow-Mieszkowski. Both with relative payoff concerns and for imitative policies, evolutionary stability is the appropriate solution concept. It renders tax competition more aggressive than with best-reply policies (Nash equilibrium). Whatever the number of jurisdictions involved, an evolutionary stable tax policy coincides with the competitive outcome of a tax competition game played among infinitely many governments. Tax competition among boundedly rational governments, thus, involves drastic efficiency losses.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2723.
Date of creation: 2009
Date of revision:
fiscal competition; relative performance; tax mimicking; evolutionary stability;
Other versions of this item:
- Andreas Wagener, 2013. "Tax Competition, Relative Performance, And Policy Imitation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1251-1264, November.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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