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Tax Competition Reconsidered

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  • Wooders, Myrna
  • Zissimos, Ben
  • Dhillon, Amrita

Abstract

In a classic model of tax competition, we show that the level of public good provision and taxation in a Nash equilibrium can be efficient or inefficient with either too much, or too little public good provision. The key is whether there exists a unilateral incentive to deviate from the efficient state and, if so, whether this entails raising or lowering taxes. A priori, there is no reason to suppose the incentive is in either one direction or the other. In addition, we demonstrate conditions ensuring existence of an asymmetric Nash equilibrium with efficient public good provision. As in prior literature, local amenities enhance capital’s productivity. Prior literature, however, focuses on under-provision of public goods.

Suggested Citation

  • Wooders, Myrna & Zissimos, Ben & Dhillon, Amrita, 2001. "Tax Competition Reconsidered," Economic Research Papers 269396, University of Warwick - Department of Economics.
  • Handle: RePEc:ags:uwarer:269396
    DOI: 10.22004/ag.econ.269396
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    More about this item

    Keywords

    Agricultural and Food Policy; Financial Economics;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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