Nash equilibrium in tax and public investment competition
Ajay Sharma and
Rupayan Pal ()
International Review of Economics & Finance, 2019, vol. 62, issue C, 106-120
We analyze Nash equilibrium in fiscal competition with tax and public investment between symmetric regions. We show that given the opposite strategic nature of tax (strategic complement) and public investment (strategic substitute), there is possibility of multiple equilibria. We find that if strategic substitute effect dominates strategic complement effect, then both regions have first mover advantage in a timing game and simultaneous move Nash equilibrium (early, early) emerges; otherwise sequential move equilibria-(early, late) and (late, early) emerges. Also, sequential move Nash equilibria are Pareto improving than simultaneous move outcome. Lastly, race-to-the-bottom in taxes is restricted in sequential move equilibria.
Keywords: Capital taxation; Public investment; Tax competition; Joint strategic substitutes; Joint strategic complements (search for similar items in EconPapers)
JEL-codes: H25 F21 R50 H41 H73 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Nash Equilibrium in Tax and Public Investment Competition (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:62:y:2019:i:c:p:106-120
Access Statistics for this article
International Review of Economics & Finance is currently edited by H. Beladi and C. Chen
More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().