A Bargaining Model of Tax Competition
This paper develops a model in which competing governments offer financial incentives to individual firms to induce the 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 almost always finds that competition among governments leads to the misallocation of capital.
|Date of creation:||02 Dec 2005|
|Date of revision:||04 Dec 2007|
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