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Equilibrium leadership in tax competition models with capital ownership: a rejoinder

Jean Hindriks () and Yukihiro Nishimura ()
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Yukihiro Nishimura: Osaka University

International Tax and Public Finance, 2017, vol. 24, issue 2, No 7, 338-349

Abstract: Abstract This paper reconciles two opposite results in the tax competition literature. Kempf and Rota-Graziosi (J Public Econ 94(9–10):768–776, 2010) and Hindriks and Nishimura (J Public Econ 121:66–68, 2015) have shown that the two Stackelberg outcomes prevail as the subgame perfect equilibria when capital is entirely owned by nonresidents. However, Ogawa (Int Tax Public Finance 20(3):474–484, 2013) has shown that the simultaneous-move outcome prevails when capital is entirely owned by residents. We develop a model in which capital ownership can vary freely between these two polar cases. We show that there exists a unique degree of residential capital ownership such that the equilibrium switches from the Stackelberg to the simultaneous-move outcomes. The chance for the simultaneous-move outcome to prevail increases with the extent of production asymmetry between regions. Partial ownership also induces a novel effect of tax leadership that we call the preference reversion effect.

Keywords: Endogenous timing; Tax competition; Capital ownership (search for similar items in EconPapers)
JEL-codes: H30 H87 C72 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Equilibrium Leadership in Tax Competiton Models with Capital Ownership: A Rejoinder (2016)
Working Paper: Equilibrium Leadership in Tax Competition Models with Capital Ownership: A Rejoinder (2015) Downloads
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DOI: 10.1007/s10797-016-9421-4

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