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And the tax winner is ... A note on endogenous timing in the commodity taxation race




This note investigates the endogenous choice of leadership in commodity tax competition. We apply an endogenous timing game, where jurisdictions commit themselves to lead or to follow, to the Kanbur and Keen (1993) model. We show that the Subgame Pefect Nash Equilibria (SPNE) correspond to the two Stackelberg situations, yielding to a coordination issue. Selecting an equilibrium by means of the risk-dominance criterion, we prove that the smaller country has to lead. If asymmetry among countries is sufficient Pareto-dominance reinforces risk-dominance in selecting the same SPE. We deduce two important results for the literature of tax competition: when countries differ sufficiently by their size, the "big-country-higher-tax" rule does not hold anymore; when countries are close in size, tax harmonization through a unique tax rate among countries occurs without any international agreement

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  • Hubert Kempf & Grégoire Rota-Graziosi, 2010. "And the tax winner is ... A note on endogenous timing in the commodity taxation race," Documents de travail du Centre d'Economie de la Sorbonne 10038, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:10038

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    1. Dominique Guegan & Pierre-André Maugis, 2008. "New prospects on vines," Documents de travail du Centre d'Economie de la Sorbonne b08095, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2010.
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    4. Andrew J. Patton, 2008. "Copula-Based Models for Financial Time Series," OFRC Working Papers Series 2008fe21, Oxford Financial Research Centre.
    5. Andrew Patton & Yanqin Fan & Xiaohong Chen, 2004. "Simple Tests for Models of Dependence Between Multiple Financial Time Series, with Applications to U.S. Equity Returns and Exchange Rates," Working Papers wp04-19, Warwick Business School, Finance Group.
    6. Andrew J. Patton, 2006. "Modelling Asymmetric Exchange Rate Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 527-556, May.
    7. Aas, Kjersti & Czado, Claudia & Frigessi, Arnoldo & Bakken, Henrik, 2009. "Pair-copula constructions of multiple dependence," Insurance: Mathematics and Economics, Elsevier, vol. 44(2), pages 182-198, April.
    8. Fischer, Matthias J. & Köck, Christian & Schlüter, Stephan & Weigert, Florian, 2007. "Multivariate Copula Models at Work: Outperforming the desert island copula?," Discussion Papers 79/2007, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Statistics and Econometrics.
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    Commitment; commodity tax competition; strategic complements; Stackelberg Equilibrium; Pareto dominance; risk dominance;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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