Asymmetric tax competition in the presence of lobbying

Yu-Bong Lai

International Tax and Public Finance, 2014, vol. 21, issue 1, 66-86

Abstract: This paper incorporates the influence of interest groups into the asymmetric tax competition model to explain the phenomenon that small countries do not necessarily set lower capital tax rates than large countries. In addition to the efficiency effect considered by the standard model, which leads the smaller country to set a lower capital tax rate, this present paper also takes account of the political effect arising from lobbying. We show that the smaller country may face less downward political pressure. If the political effect outweighs the efficiency effect, then the smaller country sets a higher tax rate than the larger country. This result has several welfare implications, which are in contrast to the conventional consequences. Copyright Springer Science+Business Media New York 2014

Keywords: Capital mobility; Globalization; Interest groups; Political economy; Public good; Tax competition; F21; H41; H73 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:21:y:2014:i:1:p:66-86

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DOI: 10.1007/s10797-012-9258-4

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