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Endogenizing leadership and tax competition: Externalities and public good provision

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  • Eichner, Thomas

Abstract

This paper analyzes the issue of leadership when two jurisdictions are engaged in tax competition and capital tax revenues are used to finance the provision of local public goods. For that purpose we consider a timing game between the two asymmetric jurisdictions. On the first stage jurisdictions decide to move early or late and on the second stage they choose their tax rates. If jurisdictions differ with respect to population sizes or with respect to preferences for public goods, the Subgame perfect equilibria (SPE) are the two sequential Stackelberg outcomes. If jurisdictions differ with respect to productivities or with respect to capital endowments, the SPE are (i) the two sequential Stackelberg outcomes, (ii) the simultaneous Nash outcome at which both jurisdictions move early or (iii) the single sequential Stackelberg outcome at which the more productive or capital-poorer jurisdiction leads. The differences between the SPE (i)–(iii) are explained with the help of the externalities caused by the jurisdictions' tax rates.

Suggested Citation

  • Eichner, Thomas, 2014. "Endogenizing leadership and tax competition: Externalities and public good provision," Regional Science and Urban Economics, Elsevier, vol. 46(C), pages 18-26.
  • Handle: RePEc:eee:regeco:v:46:y:2014:i:c:p:18-26
    DOI: 10.1016/j.regsciurbeco.2014.01.006
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hikaru Ogawa & Atsushi Yamagishi, 2016. "Ad Valorem Capital Tax Competition," CIRJE F-Series CIRJE-F-1030, CIRJE, Faculty of Economics, University of Tokyo.
    2. Sjögren, Tomas, 2017. "Capital Taxation in a Fiscal Union – Implications of Simultaneous Horizontal and Decentralized Leadership," Umeå Economic Studies 947, Umeå University, Department of Economics.
    3. repec:kap:itaxpf:v:24:y:2017:i:3:d:10.1007_s10797-016-9424-1 is not listed on IDEAS
    4. Hubert Kempf & Grégoire Rota-Graziosi, 2015. "Further analysis on leadership in tax competition: the role of capital ownership—a comment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(6), pages 1028-1039, December.
    5. Keisuke Kawachi & Hikaru Ogawa & Taiki Susa, 2017. "Endogenizing Government's Objectives in Tax Competition with Capital Ownership," CIRJE F-Series CIRJE-F-1054, CIRJE, Faculty of Economics, University of Tokyo.
    6. Pi Jiancai & Chen Xuyang, 2017. "Endogenous Leadership in Tax Competition: A Combination of the Effects of Market Power and Strategic Interaction," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(1), pages 1-8, February.
    7. Itaya, Jun-ichi & Yamaguchi, Chikara, 2015. "Does Endogenous Timing Matter in Implementing Partial Tax Harmonization?," Discussion paper series. A 286, Graduate School of Economics and Business Administration, Hokkaido University.
    8. Jean Hindriks & Yukihiro Nishimura, 2017. "Equilibrium leadership in tax competition models with capital ownership: a rejoinder," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 338-349, April.

    More about this item

    Keywords

    Endogenous timing; Tax competition; Externality; Stackelberg;

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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