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Minimum Taxes and Repeated Tax Competition

  • Aron Kiss

    ()

    (National Bank of Hungary)

An agreement about a lower bound for admissible tax rates can reduce the equilibrium tax rate (and thus welfare) in tax competition among fully symmetric countries. This is shown in an infinitely repeated game where the stage game describes the standard tax competition model with source-based taxes and symmetric countries. Repeated interaction may allow countries to sustain cooperation through implicit contracts. Lower bounds on tax rates ('minimum taxes') restrict the ability of countries to punish deviators. This makes cooperation harder to sustain. The introduction of a lower bound on feasible tax rates may thus harm all countries.

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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1116.

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Length: 19 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:has:discpr:1116
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  1. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers 4, John Deutsch Institute for the Study of Economic Policy.
  2. 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 877-92, September.
  3. Konrad, Kai A., 2008. "Non-binding minimum taxes may foster tax competition
    [Mindeststeuern können Steuerwettbewerb verstärken]
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  6. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  7. 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.
  8. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  9. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
  10. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP -804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Konrad, Kai A. & Schjelderup, Guttorm, 1999. "Fortress Building in Global Tax Competition," Journal of Urban Economics, Elsevier, vol. 46(1), pages 156-167, July.
  12. Coates, Dennis, 1993. "Property tax competition in a repeated game," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 111-119, March.
  13. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
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  15. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  16. Cardarelli, R. & Taugourdeau, E. & Vidal, J.-P., 1999. "A Repeated Interactions Model of Tax Competition," G.R.E.Q.A.M. 99a34, Universite Aix-Marseille III.
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