Minimum Taxes and Repeated Tax Competition

Áron Kiss

No 1116, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: An agreement about a lower bound for admissible tax rates can reduce the equilibrium tax rate (and thus welfare) in tax competition among fully symmetric countries. This is shown in an infinitely repeated game where the stage game describes the standard tax competition model with source-based taxes and symmetric countries. Repeated interaction may allow countries to sustain cooperation through implicit contracts. Lower bounds on tax rates ('minimum taxes') restrict the ability of countries to punish deviators. This makes cooperation harder to sustain. The introduction of a lower bound on feasible tax rates may thus harm all countries.

Keywords: tax competition; tax harmonization; minimum tax; tax floor; repeated games (search for similar items in EconPapers)
JEL-codes: F21 H87 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2011-04
New Economics Papers: this item is included in nep-acc and nep-pbe
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Minimum taxes and repeated tax competition (2012)
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