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A bargaining model of tax competition

  • Han, Seungjin
  • Leach, John

This paper develops a model in which competing governments offer financial incentives to induce individual firms to locate within their jurisdictions. Equilibrium is described under three specifications of the supplementary taxes. There is no misallocation of capital under two of these specifications, and there might or might not be capital misallocation under the third. This result contrasts strongly with that of the standard tax competition model, which does not allow governments to treat firms individually. That model finds that competition among governments almost always leads to capital misallocation.

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File URL: http://www.sciencedirect.com/science/article/B6V76-4RDR18C-1/1/02d6b378fe0442bc7c951b161c2f0fc1
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 5-6 (June)
Pages: 1122-1141

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:1122-1141
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
  2. Burbidge, John & Cuff, Katherine & Leach, John, 2006. "Tax competition with heterogeneous firms," Journal of Public Economics, Elsevier, vol. 90(3), pages 533-549, February.
  3. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
  4. Doyle, Christopher & van Wijnbergen, Sweder, 1984. "Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays," CEPR Discussion Papers 25, C.E.P.R. Discussion Papers.
  5. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  6. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-26, September.
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