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A note on equilibrium leadership in tax competition models

Jean Hindriks () and Yukihiro Nishimura ()
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Yukihiro Nishimura: Osaka University, Graduate School of Economics, Japan

No 2014029, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper reexamines the work of Kempf and Rota-Graziosi (J. Pub. Econ. 94: 768-776, 2010), which shows that leadership by the small region is the risk dominant equilibrium under the endogenous timing game. They obtain this result in a model where the asymmetry among countries translates into different gradients of the demand for capital but identical vertical intercept. In this note, we simply reverse the form of asymmetry by considering different vertical intercepts but identical gradient. The reason is that market power is typically related to the intercept and not to the slope of the demand function. We then show that the large region tax leadership becomes the risk dominant equilibrium and can even become Pareto superior.

Keywords: endogenous timing; tax competition; reaction function (search for similar items in EconPapers)
JEL-codes: H30 H87 C72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-pub
Date: 2014-08-19
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Journal Article: A note on equilibrium leadership in tax competition models (2015) Downloads
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