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Public Goods and Tax Competition in a Two-Sided Market

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  • Christos Kotsogiannis

    (Department of Economics, University of Exeter)

  • Konstantinos Serfes

    (Department of Economics and International Business, Bennett S. LeBow College of Business, Drexel University)

Abstract

A rather neglected issue in the tax competition literature is the dependence of equilibrium outcomes on the presence of firms and shoppers (two-sided markets). Making use of a model of vertical and horizontal differentiation, within which jurisdictions compete by providing public goods and levying taxes in order to attract firms and shoppers, this paper characterizes the non-cooperative equilibrium. It also evaluates the welfare implications for the jurisdictions of a popular policy of tax coordination: The imposition of a minimum tax. It is shown that the interaction of the two markets affects the intensity of tax competition and the degree of optimal vertical differentiation chosen by the competing jurisdictions. Though the non-cooperative equilibrium is, as it is typically the case, inefficient such inefficiency is mitigated by the strength of the interaction in the two markets. A minimum tax policy is shown to be effective when the strength of the interaction is weak and ineffective when it is strong.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0808.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0808.

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Date of creation: 2008
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Handle: RePEc:exe:wpaper:0808

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Related research

Keywords: Public goods; Tax competition; Two-Sided Market; Vertical Differentiation;

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Cited by:
  1. Tanja Greiner & Marco Sahm, 2011. "How Effective are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," CESifo Working Paper Series 3524, CESifo Group Munich.
  2. Rupayan Pal & Ajay Sharma, 2011. "Competition for foreign capital: Endogenous objective, public investment and tax," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-021, Indira Gandhi Institute of Development Research, Mumbai, India.
  3. Pal, Rupayan & Sharma, Ajay, 2013. "Endogenizing governments' objectives in tax competition," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 570-578.

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