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Hotelling Tax Competition

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Author Info

  • Wooders, Myrna

    (Department of Economics, University of Warwick)

  • Zissimos, Ben

    (University of Birmingham)

Abstract

This paper shows how competition among governments for mobile firms can bring about excessive differentiation in levels of taxation and public good provision. Hotelling’s Principle of Minimum Differentiation is applied in the context of tax competition and shown to be invalid. Instead, when an equilibrium exists, differentiation of public good provision is maximized. Non-existence of equilibrium, which can occur, is a metaphor for intense tax competition. The paper also shows that, to some extent, perfect tax discrimination presents a solution to the existence problem created by Hotelling tax competition, but that the efficiency problem of Hotelling tax competition is exacerbated.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp668.pdf
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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 668.

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Length: 56 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:wrk:warwec:668

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Related research

Keywords: amenity competition ; Hotelling ; limit tax ; perfect tax discrimination ; single peaked profit function ; tax competition.;

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References

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  8. Amrita Dhillon & Myrna Wooders & Ben Zissimos, 2007. "Tax Competition Reconsidered," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 391-423, 06.
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  34. repec:fth:louvco:0124 is not listed on IDEAS
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Citations

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Cited by:
  1. John Burbidge & Katherine Cuff & John Leach, 2004. "Capital Tax Competition with Heterogeneous Firms and Agglomeration Effects (new title: Tax competition with heterogeneous firms)," CESifo Working Paper Series 1277, CESifo Group Munich.
  2. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
  3. Hiroshi Aiura & Yasuo Sanjo, 2010. "Privatization of local public hospitals: effect on budget, medical service quality, and social welfare," International Journal of Health Care Finance and Economics, Springer, vol. 10(3), pages 275-299, September.
  4. Redoano, Michela, 2003. "Fiscal Interactions Among European Countries," The Warwick Economics Research Paper Series (TWERPS) 680, University of Warwick, Department of Economics.
  5. DEMBOUR, Carole & WAUTHY, Xavier, . "Investment in public infrastructure with spillovers and tax competition between contiguous regions," CORE Discussion Papers RP -2161, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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