Endogenous capital supply and equilibrium leadership in tax competition

Keisuke Kawachi, Hikaru Ogawa and Taiki Susa

International Review of Economics & Finance, 2020, vol. 70, issue C, 622-634

Abstract: In this paper, we reconsider the leadership of tax competition, focusing on a situation where total amount of capital competed by countries is endogenously determined. Specifically, we model a timing game under asymmetric tax competition, in which capital is supplied not only by the residents of two countries, but also by investors outside these countries. The results show that, when the capital market becomes more accessible for outside investors, sequential-move equilibria are more likely to be realized, in which one country leads and the other follows. Conversely, only a simultaneous-move equilibrium emerges when the openness of the market is sufficiently small. These results are reversed when governments compete in public investment rather than tax.

Keywords: Tax competition; Endogenous timing; Capital supply; Market access (search for similar items in EconPapers)
JEL-codes: H73 H77 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:70:y:2020:i:c:p:622-634

DOI: 10.1016/j.iref.2020.06.031

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