Stability of Coalitional Equilibria within Repeated Tax Competition
AbstractThis paper analyzes the stability of capital tax harmonization agree- ments in a stylized model where countries have formed coalitions which set a common tax rate in order to avoid the inefficient fully non- cooperative Nash equilibrium. In particular, for a given coalition struc- ture we study to what extend the stability of tax agreements is affected by the coalitions that have formed. In our set-up, countries are sym- metric, but coalitions can be of arbitrary size. We analyze stability by means of a repeated game setting employing simple trigger strategies and we allow a sub-coalition to deviate from the coalitional equilib- rium. For a given form of punishment we are able to rank the stability of different coalition structures as long as the size of the largest coali- tion does not change. Our main results are: (1) singleton regions have the largest incentives to deviate, (2) the stability of cooperation de- pends on the degree of cooperative behavior ex-ante.
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Bibliographic InfoPaper provided by University of Paderborn, CIE Center for International Economics in its series Working Papers with number 48.
Length: 46 pages
Date of creation: Feb 2012
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Web page: http://www.uni-paderborn.de/fakultaeten/wiwi/department4/cie/
More information through EDIRC
capital tax competition; tax coordination; coalitional equilibria; repeated game;
Find related papers by JEL classification:
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-03-08 (Accounting & Auditing)
- NEP-ALL-2012-03-08 (All new papers)
- NEP-GTH-2012-03-08 (Game Theory)
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