Production inefficiency, cross-ownership and regional tax-range coordination

Mutsumi Matsumoto

Economics of Governance, 2019, vol. 20, issue 4, No 3, 388 pages

Abstract: Abstract Using a simple asymmetric capital-tax competition model where the allocation of mobile capital is distorted in non-cooperative equilibrium, this paper analyzes the welfare impact of regional tax coordination on a range of possible tax rates (a combination of maximum and minimum capital taxes made by a subset of regions). Under the assumption that the ownership of immobile factors (e.g., business land) is diversified across regions, a new possibility of beneficial coordination arises which has not been identified before: tax-range coordination “among capital-exporting regions” or “among capital-importing regions” may improve the welfare of all regions. This is in contrast to the case without cross-ownership where both capital-exporting and capital-importing regions must be involved in tax-range coordination in order to achieve a Pareto improvement.

Keywords: Tax competition; Regional coordination; Cross-ownership (search for similar items in EconPapers)
JEL-codes: F21 H25 H71 H73 R12 R13 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10101-019-00229-z

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