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Endogenizing government’s objectives in tax competition with capital ownership

Keisuke Kawachi (), Hikaru Ogawa and Taiki Susa ()
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Keisuke Kawachi: Mie University
Taiki Susa: Chubu University

International Tax and Public Finance, 2019, vol. 26, issue 3, 571-594

Abstract: Abstract In this study, we extend the standard approach of horizontal tax competition by endogenizing the policy objectives that governments pursue. Following the literature on strategic delegation games, we consider a pre-play stage, where jurisdictions commit themselves to act as Leviathan or as benevolent agents. We show that the symmetric sub-game perfect equilibria correspond to three cases of tax competition among the Leviathan governments, moderate Leviathans, and benevolent governments, depending on the form of capital ownership. Further analysis reveals that asymmetric tax competition generates competition between the benevolent government and the (moderate) Leviathan government. The results provide grounds for benevolent or Leviathan objectives and explain why some governments act as one, while others aim toward a different objective.

Keywords: Tax competition; Endogenous policy objective; Leviathan; Benevolent government (search for similar items in EconPapers)
JEL-codes: F21 H11 H73 H77 (search for similar items in EconPapers)
Date: 2019
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