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Minimum Taxes and Repeated Tax Competition

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  • Aron Kiss

    ()
    (National Bank of Hungary)

Abstract

An agreement about a lower bound for admissible tax rates can reduce the equilibrium tax rate (and thus welfare) in tax competition among fully symmetric countries. This is shown in an infinitely repeated game where the stage game describes the standard tax competition model with source-based taxes and symmetric countries. Repeated interaction may allow countries to sustain cooperation through implicit contracts. Lower bounds on tax rates ('minimum taxes') restrict the ability of countries to punish deviators. This makes cooperation harder to sustain. The introduction of a lower bound on feasible tax rates may thus harm all countries.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1116.

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Length: 19 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:has:discpr:1116

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Keywords: tax competition; tax harmonization; minimum tax; tax floor; repeated games;

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References

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Cited by:
  1. Sonja Brangewitz & Sarah Brockhoff, 2012. "Stability of Coalitional Equilibria within Repeated Tax Competition," Working Papers CIE 48, University of Paderborn, CIE Center for International Economics.
  2. repec:pdn:wpaper:48 is not listed on IDEAS
  3. Sonja Brangewitz & Sarah Brockhoff, 2012. "Stability of Coalitional Equilibria within Repeated Tax Competition," Working Papers 461, Bielefeld University, Center for Mathematical Economics.
  4. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer, Springer, vol. 21(1), pages 119-152, February.

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