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Endogenous Timing in Tax and Public-Investment Competition

Keisuke Kawachi, Hikaru Ogawa and Taiki Susa

Journal of Institutional and Theoretical Economics (JITE), 2015, vol. 171, issue 4, 641-651

Abstract: This study analyzes an endogenous order of moves in an interregional competition for mobile capital, where countries choose their tax or subsidy rate and public-investment levels. In equilibrium, countries set tax or subsidy rates simultaneously, but choose their public-investment levels sequentially. In addition, on comparing the welfare between the simultaneous-move and sequential-move outcomes, we find that (i) the sequential-move welfare levels are always larger, and (ii) the regional disparity in the sequential-move outcome is larger (smaller) than that in the simultaneous-move outcome if the capital-exporting (-importing) country leads in public investment.

JEL-codes: H73 H77 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1628/093245613X14307274621224

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