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Federal tax autonomy and the limits of cooperation

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  • Kessing, Sebastian G.
  • Konrad, Kai A.
  • Kotsogiannis, Christos

Abstract

We consider the hold-up problem between a foreign direct investor and the government(s) in a host country with weak governmental structure and lack of power to commit. Using Nash threats, we show that an efficient investment level can be sustained for a sufficiently high discount factor and ask whether a federal structure makes collusion more or less sustainable. We show that collusion between the government and the investor is easier to sustain if the host country is more centralized or if the government layers can commit to fixed sharing rules. -- Wir betrachten das „Hold-up Problem“, das in den Beziehungen zwischen einem ausländischen Investor und der Regierung, bzw. den Regierungen eines Gastlandes mit schwachen institutionellen Strukturen besteht. Unter Verwendung von Nash-Drohungen wird gezeigt, dass eine Überwindung des Holdup Problems durch wiederholte Interaktion zwischen den Akteuren möglich ist. Weiterhin wird untersucht, ob föderale Strukturen eine solche Überwindung wahrscheinlicher machen oder nicht. Schließlich wird gezeigt, dass eine Überwindung des Hold-up Problems besser gelingt, wenn die verschiedenen Regierungsebenen des Gastlandes sich bindend auf eine gemeinschaftssteuerliche Aufteilung des Steueraufkommens festlegen können.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number SP II 2005-18.

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Date of creation: 2005
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Handle: RePEc:zbw:wzbmpg:spii200518

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Keywords: Tacit collusion; foreign direct investment; hold-up problem; federalism; vertical tax externality; tax competition;

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References

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  1. Schnitzer, Monika, 1997. "Debt vs. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows," CEPR Discussion Papers 1608, C.E.P.R. Discussion Papers.
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  23. Baretti, Christian & Huber, Bernd & Lichtblau, Karl, 2002. "A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany," Munich Reprints in Economics 20129, University of Munich, Department of Economics.
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Citations

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Cited by:
  1. Aron Kiss, 2011. "Minimum Taxes and Repeated Tax Competition," IEHAS Discussion Papers 1116, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Geys, Benny & Konrad, Kai A., 2010. "Federalism and optimal allocation across levels of governance," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2010-09, Social Science Research Center Berlin (WZB).
  3. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
  4. repec:pdn:wpaper:48 is not listed on IDEAS
  5. Sonja Brangewitz & Sarah Brockhoff, 2012. "Stability of Coalitional Equilibria within Repeated Tax Competition," Working Papers 461, Bielefeld University, Center for Mathematical Economics.

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