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Size effect, neighbour effect and peripheral effect in cross-border tax games

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  • Liu, Xin

Abstract

This paper analyses a game theoretic model of tax competition in a system where tax authorities are revenue optimisers and countries are differentiated by size. The model accommodates more than two countries. In equilibrium, larger countries set higher tax rates non-cooperatively. By applying the Hotelling linear model, this paper gives examples where the size effect, neighbourhood effect, and peripheral effect coexist and push up the tax rate in equilibrium.

Suggested Citation

  • Liu, Xin, 2014. "Size effect, neighbour effect and peripheral effect in cross-border tax games," Economics Discussion Papers 2014-19, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:201419
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    More about this item

    Keywords

    tax competition; cross-border shopping; Nash equilibrium; peripheral effects;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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