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Bigger Countries with Probably Lower Commodity Taxes

Author

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  • Xin Liu
  • Paul Madden

Abstract

The article studies a spatial model of commodity tax competition between two countries that may differ in both population density and land mass, synthesizing two earlier contributions where pure strategy equilibria always existed and where the ‘bigger’ country (that with the larger population) set the higher tax. In our more general setting, pure strategy equilibria may not exist, but we can compute a mixed strategy equilibrium, which offers probabilistic alternatives to the empirically questionable ‘big country-high tax’ correlation; the bigger country may have a lower ‘expected’ tax rate and may be ‘more likely’ to be the low tax country.

Suggested Citation

  • Xin Liu & Paul Madden, 2013. "Bigger Countries with Probably Lower Commodity Taxes," Studies in Microeconomics, , vol. 1(2), pages 173-183, December.
    • Handle: RePEc:sae:miceco:v:1:y:2013:i:2:p:173-183
    DOI: 10.1177/2321022213501257
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    References listed on IDEAS

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