Sensitivity Versus Size: Implications for Tax Competition

David Agrawal, Adib Bagh and Mohammed Mardan

No 11616, CESifo Working Paper Series from CESifo

Abstract: The conventional wisdom is that a big jurisdiction sets a higher tax rate than a small jurisdiction. We show this result arises due to simplifying assumptions that imply tax-base sensitivities are equal across jurisdictions. When more than two jurisdictions compete in commodity taxes, tax-base sensitivities need not be equal across jurisdictions and a small jurisdiction can set a higher tax rate than a big jurisdiction. Our analysis extends to capital and profit taxes, and, more generally, to various types of multi-player asymmetric competition.

Keywords: Ramsey rule; inverse elasticity; fiscal competition; optimal taxation; spatial price competition; sales tax (search for similar items in EconPapers)
JEL-codes: C70 D40 H20 H70 L10 R50 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Journal Article: Sensitivity versus size: implications for tax competition (Forthcoming)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11616

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