A Bargaining Model of Tax Competition
This paper develops a model in which competing governments offer financial incentives to induce individual firms to locate within their jurisdictions. Equilibrium is described under three specifications of the supplementary taxes. There is no misallocation of capital under two of these specifications, and there might or might not be capital misallocation under the third. This result contrasts strongly with that of the standard tax competition model, which does not allow governments to treat firms individually. That model finds that competition among governments almost always leads to capital misallocation.
|Date of creation:||Dec 2007|
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CEPR Discussion Papers
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- John Burbidge & Katherine Cuff & John Leach, 2005.
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05001, University of Waterloo, Department of Economics, revised Jan 2005.
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- Koichi Hamada, 1966. "Strategic Aspects of Taxation on Foreign Investment Income," The Quarterly Journal of Economics, Oxford University Press, vol. 80(3), pages 361-375.
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