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Public Goods and Tax Competition in a Two-Sided Market

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  • CHRISTOS KOTSOGIANNIS
  • KONSTANTINOS SERFES

Abstract

A rather neglected issue in the tax competition literature is the dependence of equilibrium outcomes on the presence of firms and shoppers (two-sided markets). Making use of a model of vertical and horizontal differentiation, within which jurisdictions compete by providing public goods and levying taxes in order to attract firms and shoppers, this paper characterizes the noncooperative equilibrium. It also evaluates the welfare implications for the jurisdictions of a popular policy of tax coordination: The imposition of a minimum tax. It is shown that the interaction of the two markets affects the intensity of tax competition and the degree of optimal vertical differentiation chosen by the competing jurisdictions. Though the noncooperative equilibrium is, as it is typically the case, inefficient such inefficiency is mitigated by the strength of the interaction in the two markets. A minimum tax policy is shown to be effective when the strength of the interaction is weak and ineffective when it is strong. Copyright © 2010 Wiley Periodicals, Inc..

Suggested Citation

  • Christos Kotsogiannis & Konstantinos Serfes, 2010. "Public Goods and Tax Competition in a Two-Sided Market," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(2), pages 281-321, April.
  • Handle: RePEc:bla:jpbect:v:12:y:2010:i:2:p:281-321
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    References listed on IDEAS

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    Cited by:

    1. Rupayan Pal & Ajay Sharma, 2011. "Competition for foreign capital: Endogenous objective, public investment and tax," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-021, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Sahm, Marco & Greiner, Tanja, 2016. "How Effective Are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," Annual Conference 2016 (Augsburg): Demographic Change 145724, Verein für Socialpolitik / German Economic Association.
    3. Paul Belleflamme & Eric Toulemonde, 2016. "Tax Incidence on Competing Two-Sided Platforms: Lucky Break or Double Jeopardy," CESifo Working Paper Series 5882, CESifo Group Munich.
    4. Thomas A. Gresik & Kai A. Konrad, 2017. "Tax Havens, Accounting Experts, and Fee-Setting Rules," CESifo Working Paper Series 6774, CESifo Group Munich.
    5. Tanja Greiner & Marco Sahm, 2011. "How Effective are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," CESifo Working Paper Series 3524, CESifo Group Munich.
    6. repec:hit:hitjec:v:58:y:2017:i:1:p:21-40 is not listed on IDEAS
    7. repec:eee:iepoli:v:43:y:2018:i:c:p:48-60 is not listed on IDEAS
    8. Pal, Rupayan & Sharma, Ajay, 2013. "Endogenizing governments' objectives in tax competition," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 570-578.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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