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

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Author Info
Costas Hadjiyiannis
Panos Hatzipanayotou ()
Michael S. Michael ()

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Abstract

We construct a general equilibrium model of a two-country trading block where governments through tax policies attract mobile capital, and provide an imported public consumption good. At Nash equilibrium, when the public good is under-provided, (i) a country with a large GDP, has a large Nash equilibrium income tax rate, (ii) if initially the existing foreign capital in the country is zero or small, then the country with a large population or high individual marginal willingness to pay for the public good has a large Nash equilibrium income tax rate. When the two countries act cooperatively, then for each country, the cooperative optimal income tax rate is positive, and if they are identical then the cooperative income tax rate is greater than the Nash. When the two countries are different, then it is possible that the cooperative income tax rate is less than the Nash.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 524.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_524

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Related research
Keywords: Nash and cooperative income taxes; capital mobility; public goods;

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November. [Downloadable!] (restricted)
  2. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Journal of Public Economics, Elsevier, vol. 71(3), pages 441-458, March. [Downloadable!] (restricted)
  3. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January. [Downloadable!] (restricted)
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  4. 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 877-92, September. [Downloadable!] (restricted)
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  5. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November. [Downloadable!] (restricted)
  6. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March. [Downloadable!] (restricted)
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  7. Amrita Dhillon & Carlo Perroni & Kim Scharf, 1997. "Implementing tax co-ordination," IFS Working Papers W97/12, Institute for Fiscal Studies.
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  8. Mintz, Jack & Tulkens, Henry, 1996. "Optimality properties of alternative systems of taxation of foreign capital income," Journal of Public Economics, Elsevier, vol. 60(3), pages 373-399, June. [Downloadable!] (restricted)
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  9. King, Mervyn A., 1986. "A pigovian rule for the optimum provision of public goods," Journal of Public Economics, Elsevier, vol. 30(3), pages 273-291, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2004. "Pollution and Capital Tax Competition within a Regional Block," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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