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Endogenous capital supply and equilibrium leadership in tax competition

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  • Kawachi, Keisuke
  • Ogawa, Hikaru
  • Susa, Taiki

Abstract

In this paper, we reconsider the leadership of tax competition, focusing on a situation where total amount of capital competed by countries is endogenously determined. Specifically, we model a timing game under asymmetric tax competition, in which capital is supplied not only by the residents of two countries, but also by investors outside these countries. The results show that, when the capital market becomes more accessible for outside investors, sequential-move equilibria are more likely to be realized, in which one country leads and the other follows. Conversely, only a simultaneous-move equilibrium emerges when the openness of the market is sufficiently small. These results are reversed when governments compete in public investment rather than tax.

Suggested Citation

  • Kawachi, Keisuke & Ogawa, Hikaru & Susa, Taiki, 2020. "Endogenous capital supply and equilibrium leadership in tax competition," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 622-634.
  • Handle: RePEc:eee:reveco:v:70:y:2020:i:c:p:622-634
    DOI: 10.1016/j.iref.2020.06.031
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax competition; Endogenous timing; Capital supply; Market access;
    All these keywords.

    JEL classification:

    • 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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