A note on Kanbur and Keen : transfers to sustain fiscal cooperation
We analyze the two-country model of fiscal competition of Kanbur and Keen (1993) where countries differ in size and use a commodity tax to reach their objective of revenue maximization. Due to fiscal externalities, the non-cooperative outcome is inefficient. Besides, the international optimum could be individually irrational for the smaller country compared to the non-cooperative equilibrium. The purpose of this paper is to examine whether the international optimum can be reached and sustained by means of financial transfers between the countries as suggested in another context by Chander and Tulkens (1995, 1997). We show that with transfers of a specific form internationally optimal fiscal cooperation is indeed individually rational for both countries and, in that sense, sustainable. Furthermore, we show that these transfers can be such that the optimal outcome is, under some conditions, a dominant strategy for both countries.
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| Date of creation: | 00 Feb 2004 |
| Handle: | RePEc:cor:louvco:2004002 |
| Contact details of provider: | Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium) Phone: 32(10)474321 Fax: +32 10474304 Web page: http://www.uclouvain.be/core Email: More information through EDIRC
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- Haufler,Andreas, 2008.
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- CHANDER, Parkash & TULKENS, Henry, 1995. "The Core of an Economy with Multilateral Environmental Externalities," CORE Discussion Papers 1995050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Chander, Parkash & Tulkens, Henry, 1994. "The Core of an Economy With Multilateral Environmental Externalities," Working Papers 886, California Institute of Technology, Division of the Humanities and Social Sciences.
- Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-892, September.
- Ravi Kanbur & Michael Keen, 1991. "Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size," Working Papers 819, Queen's University, Department of Economics.
- Charles Figuieres & Jean Hindriks & Gareth D. Myles, 2004. "Revenue Sharing versus Expenditure Sharing in a Federal System," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(2), pages 155-174, 03.
- FIGUIÈRES, Charles & HINDRIKS, Jean & MYLES, Gareth D., "undated". "Revenue sharing versus expenditure sharing in a federal system," CORE Discussion Papers RP 1683, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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