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Stability of coalitional equilibria within repeated tax competition

  • Brangewitz, Sonja

    (Center for Mathematical Economics, Bielefeld University)

  • Brockhoff, Sarah

    (Center for Mathematical Economics, Bielefeld University)

Registered author(s):

    This paper analyzes the stability of capital tax harmonization agreements in a stylized model where countries have formed coalitions which set a common tax rate in order to avoid the inefficient fully noncooperative Nash equilibrium. In particular, for a given coalition structure we study to what extend the stability of tax agreements is affected by the coalitions that have formed. In our set-up, countries are symmetric, but coalitions can be of arbitrary size. We analyze stability by means of a repeated game setting employing simple trigger strategies and we allow a sub-coalition to deviate from the coalitional equilibrium. For a given form of punishment we are able to rank the stability of different coalition structures as long as the size of the largest coalition does not change. Our main results are: (1) singleton regions have the largest incentives to deviate, (2) the stability of cooperation depends on the degree of cooperative behavior ex-ante.

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    File URL: https://pub.uni-bielefeld.de/download/2671721/2671722
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    Paper provided by Center for Mathematical Economics, Bielefeld University in its series Center for Mathematical Economics Working Papers with number 461.

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    Length: 46
    Date of creation: 15 Apr 2014
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    Handle: RePEc:bie:wpaper:461
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    1. Áron Kiss, 2012. "Minimum taxes and repeated tax competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(5), pages 641-649, October.
    2. Omer Biran & Francoise Forges, 2010. "Core-stable Rings in Auctions with Independent Private Values," CESifo Working Paper Series 3067, CESifo Group Munich.
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    7. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    8. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    9. Haufler, Andreas, 1996. "Factor taxation, income distribution, and capital market integration," Discussion Papers, Series II 315, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    10. Burbidge, John B. & James A. DePater & Gordon M. Meyers & Abhijit Sengupta, 1997. "A Coalition-Formation Approach to Equilibrium Federations and Trading Blocs," American Economic Review, American Economic Association, vol. 87(5), pages 940-56, December.
    11. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
    12. Konrad, K.A. & Schjelderup, G., 1998. "Fortress Building in Global Tax Competition," Papers 17/98, Norwegian School of Economics and Business Administration-.
    13. Cardarelli, R. & Taugourdeau, E. & Vidal, J.-P., 1999. "A Repeated Interactions Model of Tax Competition," Papiers d'Economie Mathématique et Applications 1999.73, Université Panthéon-Sorbonne (Paris 1).
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    21. repec:dau:papers:123456789/4100 is not listed on IDEAS
    22. Zhao, Jingang, 1992. "The hybrid solutions of an N-person game," Games and Economic Behavior, Elsevier, vol. 4(1), pages 145-160, January.
    23. Itaya, Jun-ichi & Okamura, Makoto & Yamaguchi, Chikara, 2008. "Are regional asymmetries detrimental to tax coordination in a repeated game setting?," Journal of Public Economics, Elsevier, vol. 92(12), pages 2403-2411, December.
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    26. Lisa Grazzini & Tanguy Van Ypersele, 2003. "Fiscal Coordination and Political Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 305-325, 04.
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