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Tax Competition Reconsidered

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Author Info
Wooders, Myrna
Zissimos, Ben
Dhillon, Amrita

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Abstract

In a classic model of tax competition, we show that the level of public good provision and taxation in a Nash equilibrium can be efficient or inefficient with either too much, or too little public good provision. The key is whether there exists a unilateral incentive to deviate from the efficient state and, if so, whether this entails raising or lowering taxes. A priori, there is no reason to suppose the incentive is in either one direction or the other. In addition, we demonstrate conditions ensuring existence of an asymmetric Nash equilibrium with efficient public good provision. As in prior literature, local amenities enhance capital’s productivity. Prior literature, however, focuses on under-provision of public goods.

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 622.

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Length: 57 pages
Date of creation: 2001
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Handle: RePEc:wrk:warwec:622

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Keywords: Amenities Asymmetric Nash equilibrium Efficiency Tax competition.

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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.:
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  2. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November. [Downloadable!] (restricted)
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  3. Paul Rothstein, 2007. "Discontinuous Payoffs, Shared Resources, and Games of Fiscal Competition: Existence of Pure Strategy Nash Equilibrium," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 335-368, 04. [Downloadable!] (restricted)
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  5. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Jack Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  7. Dhillon, Amrita & Perroni, Carlo, 2001. "Tax earmarking and grass-roots accountability," Economics Letters, Elsevier, vol. 72(1), pages 99-106, July. [Downloadable!] (restricted)
  8. Lockwood, Ben & Wong, Kar-yiu, 2000. "Specific and ad valorem tariffs are not equivalent in trade wars," Journal of International Economics, Elsevier, vol. 52(1), pages 183-195, October. [Downloadable!] (restricted)
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  9. Lockwood, Ben, 1993. "Commodity tax competition under destination and origin principles," Journal of Public Economics, Elsevier, vol. 52(2), pages 141-162, September. [Downloadable!] (restricted)
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  10. Gordon, Roger H, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 567-86, November. [Downloadable!] (restricted)
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  13. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March. [Downloadable!] (restricted)
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  15. Bayindir-Upmann, Thorsten & Ziad, Abderrahmanne, 2005. "Existence of equilibria in a basic tax-competition model," Regional Science and Urban Economics, Elsevier, vol. 35(1), pages 1-22, January. [Downloadable!] (restricted)
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  17. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  27. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, vol. 29(2), pages 133-172, March. [Downloadable!] (restricted)
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  32. Romer, Paul M, 1990. "Are Nonconvexities Important for Understanding Growth?," American Economic Review, American Economic Association, vol. 80(2), pages 97-103, May. [Downloadable!] (restricted)
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Full references

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. Ben Zissimos & Myrna H. Wooders, 2006. "Relaxing Tax Competition through Public Good Differentiation," Working Papers 0601, Department of Economics, Vanderbilt University. [Downloadable!]
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  2. Koffie Nassar, 2008. "Corporate Income Tax Competition in the Caribbean," IMF Working Papers 08/77, International Monetary Fund. [Downloadable!]
  3. Kenneth G. Stewart & Michael C. Webb, 2003. "Capital Taxation, Globalization, and International Tax Competition," Econometrics Working Papers 0301, Department of Economics, University of Victoria. [Downloadable!]
  4. Michela Redoano, 2007. "Fiscal Interactions Among European Countries. Does the EU Matter?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  5. Lockwood, Ben & Makris, Miltiadis, 2004. "Tax Incidence, Majority Voting And Capital Market Integration," The Warwick Economics Research Paper Series (TWERPS) 712, University of Warwick, Department of Economics. [Downloadable!]
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  6. Rizzo, Leonzio, 2006. "Local government responsiveness to federal transfers: theory and evidence," MPRA Paper 5373, University Library of Munich, Germany. [Downloadable!]
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  7. Wooders, Myrna & Zissimos, Ben, 2003. "Hotelling Tax Competition," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  8. Amrita Dhillon & Myrna H. Wooders & Ben Zissimos, 2006. "Tax Competition Reconsidered," Working Papers 0602, Department of Economics, Vanderbilt University. [Downloadable!]
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