A bargaining model of tax competition

Seungjin Han () and John Leach ()

Journal of Public Economics, 2008, vol. 92, issue 5-6, pages 1122-1141

Abstract: 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: 2008

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Related works:
Working Paper: A Bargaining Model of Tax Competition (2007)
Working Paper: A Bargaining Model of Tax Competition (2007)
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