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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.
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  • Kessing, Sebastian G. & Konrad, Kai A. & Kotsogiannis, Christos, 2006. "Federal tax autonomy and the limits of cooperation," Journal of Urban Economics, Elsevier, vol. 59(2), pages 317-329, March.
  • Handle: RePEc:eee:juecon:v:59:y:2006:i:2:p:317-329
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    Cited by:

    1. Carsten Hefeker & Sebastian G. Kessing, 2017. "Competition for natural resources and the hold-up problem," Canadian Journal of Economics, Canadian Economics Association, vol. 50(3), pages 871-888, August.
    2. Áron Kiss, 2012. "Minimum taxes and repeated tax competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(5), pages 641-649, October.
    3. Geys, Benny & Konrad, Kai A., . "Federalism and optimal allocation across levels of governance," Chapters in Economics,, University of Munich, Department of Economics.
    4. Eckhard Janeba & Karl Schulz, 2020. "A Theory of Economic Disintegration," CESifo Working Paper Series 8706, CESifo.
    5. Lars P. Feld & Ekkehard A. Köhler & Leonardo Palhuca & Christoph A. Schaltegger, 2021. "Federalism and Foreign Direct Investment - An Empirical Analysis," CESifo Working Paper Series 9120, CESifo.
    6. Brangewitz, Sonja & Brockhoff, Sarah, 2014. "Stability of coalitional equilibria within repeated tax competition," Center for Mathematical Economics Working Papers 461, Center for Mathematical Economics, Bielefeld University.
    7. 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.
    8. Sonja Brangewitz & Sarah Brockhoff, 2012. "Stability of Coalitional Equilibria within Repeated Tax Competition," Working Papers CIE 48, Paderborn University, CIE Center for International Economics.

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    More about this item

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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