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Tax Competition Reconsidered

Listed author(s):
  • Wooders, Myrna
  • Zissimos, Ben
  • Dhillon, Amrita

In a classic model of tax competition, we show that the level of public good provision and taxation in a Nash equilibrium can be efficient or inefficient with either too much, or too little public good provision. The key is whether there exists a unilateral incentive to deviate from the efficient state and, if so, whether this entails raising or lowering taxes. A priori, there is no reason to suppose the incentive is in either one direction or the other. In addition, we demonstrate conditions ensuring existence of an asymmetric Nash equilibrium with efficient public good provision. As in prior literature, local amenities enhance capital’s productivity. Prior literature, however, focuses on under-provision of public goods.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp622.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 622.

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Length: 57 pages
Date of creation: 2001
Handle: RePEc:wrk:warwec:622
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Amrita Dhillon & Carlo Perroni & Kimberley A. Scharf, "undated". "Implementing Tax Coordination," EPRU Working Paper Series 97-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  2. Amrita Dhillon & Myrna Wooders & Ben Zissimos, 2007. "Tax Competition Reconsidered," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 391-423, 06.
  3. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March.
  4. Lockwood, B., 2000. "Tax Competition and Tax Co-Ordination Under Destination and Origin Principles: A Synthesis," The Warwick Economics Research Paper Series (TWERPS) 567, University of Warwick, Department of Economics.
  5. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  6. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  7. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
  8. Gerking, Shelby D. & Mutti, John H., 1981. "Possibilities for the exportation of production taxes : A general equilibrium analysis," Journal of Public Economics, Elsevier, vol. 16(2), pages 233-252, October.
  9. Romer, Paul M, 1990. "Are Nonconvexities Important for Understanding Growth?," American Economic Review, American Economic Association, vol. 80(2), pages 97-103, May.
  10. Lockwood, Ben & Wong, Kar-yiu, 2000. "Specific and ad valorem tariffs are not equivalent in trade wars," Journal of International Economics, Elsevier, vol. 52(1), pages 183-195, October.
  11. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-1256, December.
  12. Mintz, J. & Tulkens, H., "undated". "Optimality properties of alternative systems of taxation of foreign capital income," CORE Discussion Papers RP 1212, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Abderrahmane Ziad & T. Bayindir-Upmann, 2005. "Existence of Equilibria in a Basic Tax-competition Model," Post-Print halshs-00068854, HAL.
  14. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  15. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
  16. Jack Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," CESifo Working Paper Series 554, CESifo Group Munich.
  17. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  18. 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 877-892, September.
  19. WILDASIN, David E., "undated". "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," CORE Discussion Papers RP 831, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  20. Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-856, August.
  21. Paul Rothstein, 2007. "Discontinuous Payoffs, Shared Resources, and Games of Fiscal Competition: Existence of Pure Strategy Nash Equilibrium," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 335-368, 04.
  22. Xavier Sala-i-Martin, 1995. "Transfers, social safety nets and economic growth," Economics Working Papers 139, Department of Economics and Business, Universitat Pompeu Fabra.
  23. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 567-586.
  24. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
  25. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  26. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  27. Lockwood, Ben, 1992. "Commodity Tax Competition Under Destination and Origin Principles," CEPR Discussion Papers 733, C.E.P.R. Discussion Papers.
  28. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, December.
  29. Askenazy, P. & Le Van, C., 1997. "A Model of Optimal Growth Strategy," DELTA Working Papers 97-27, DELTA (Ecole normale supérieure).
  30. MINTZ, Jack & TULKENS, Henry, "undated". "Commodity tax competition between member states of a federation: equilibrium and efficiency," CORE Discussion Papers RP 693, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  31. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
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  34. repec:ntj:journl:v:52:y:1999:i:n._2:p:269-304 is not listed on IDEAS
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