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Endogenizing government’s objectives in tax competition with capital ownership

Author

Listed:
  • Keisuke Kawachi

    (Mie University)

  • Hikaru Ogawa

    (University of Tokyo)

  • Taiki Susa

    (Chubu University)

Abstract

In this study, we extend the standard approach of horizontal tax competition by endogenizing the policy objectives that governments pursue. Following the literature on strategic delegation games, we consider a pre-play stage, where jurisdictions commit themselves to act as Leviathan or as benevolent agents. We show that the symmetric sub-game perfect equilibria correspond to three cases of tax competition among the Leviathan governments, moderate Leviathans, and benevolent governments, depending on the form of capital ownership. Further analysis reveals that asymmetric tax competition generates competition between the benevolent government and the (moderate) Leviathan government. The results provide grounds for benevolent or Leviathan objectives and explain why some governments act as one, while others aim toward a different objective.

Suggested Citation

  • Keisuke Kawachi & Hikaru Ogawa & Taiki Susa, 2019. "Endogenizing government’s objectives in tax competition with capital ownership," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(3), pages 571-594, June.
  • Handle: RePEc:kap:itaxpf:v:26:y:2019:i:3:d:10.1007_s10797-018-9516-1
    DOI: 10.1007/s10797-018-9516-1
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    Cited by:

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    3. Yutao Han & Xi Wan, 2019. "Who benefits from partial tax coordination?," The World Economy, Wiley Blackwell, vol. 42(5), pages 1620-1640, May.

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    More about this item

    Keywords

    Tax competition; Endogenous policy objective; Leviathan; Benevolent government;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • 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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