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.
|Date of creation:||00 Feb 2004|
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- Ravi Kanbur & Michael Keen, 1991.
"Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size,"
819, Queen's University, Department of Economics.
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- Chander, Parkash & Tulkens, Henry, 1994.
"The Core of an Economy With Multilateral Environmental Externalities,"
886, California Institute of Technology, Division of the Humanities and Social Sciences.
- Henry Tulkens & Parkash Chander, 1997. "The Core of an Economy with Multilateral Environmental Externalities," International Journal of Game Theory, Springer;Game Theory Society, vol. 26(3), pages 379-401.
- 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).
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- Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November.
- Sam Bucovetsky & Michael Smart, 2006.
"The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 8(1), pages 119-144, 01.
- Sam Bucovetsky & Michael Smart, 2002. "The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions," CESifo Working Paper Series 767, CESifo Group Munich.
- Charles Figuieres & Jean Hindriks & Gareth D. Myles, 2004.
"Revenue Sharing versus Expenditure Sharing in a Federal System,"
International Tax and Public Finance,
Springer, vol. 11(2), pages 155-174, 03.
- FIGUIÈRES, Charles & HINDRIKS, Jean & MYLES, Gareth D., . "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).
- Haufler, Andreas, .
"Taxation in a Global Economy,"
Monographs in Economics,
University of Munich, Department of Economics, number 20387, December.
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