Hotelling Tax Competition

Myrna Wooders and Benjamin Zissimos

No 932, CESifo Working Paper Series from CESifo

Abstract: This paper shows how competition among governments for mobile firms can bring about excessive differentiation in levels of taxation and public good provision. Hotelling’s Principle of Minimum Differentiation is applied in the context of tax competition and shown to be invalid. Instead, when an equilibrium exists, differentiation of public good provision is maximized. Non-existence of equilibrium, which is possible, is a metaphor for intense tax competition. The paper also shows that, to some extent, perfect tax discrimination presents a solution to the existence problem created by Hotelling tax competition, but that the efficiency problem of Hotelling tax competition is exacerbated.

Keywords: hotelling; limit tax; perfect tax discrimination; tax competion (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Hotelling Tax Competition (2003)
Working Paper: HOTELLING TAX COMPETITION (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_932

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