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Endogenous Timing in Tax Competition: The Effect of Asymmetric Information

Takaaki Hamada
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Takaaki Hamada: Faculty of Economics, Toyo University and Junior Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN

No DP2020-22, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This study explores the effects of asymmetric information on endogenous leadership in a simple tax competition environment (Ogawa, 2013). The study models a two-country economy where one country is informed about its own and opponent's productivity of private goods, while the other country knows only its own productivity. The results show that each type of informed country has an incentive to pretend to be the other type, which leads to a Stackelberg outcome endogenously, while the simultaneous move is the unique outcome under complete information. Under the Stackelberg outcome, the uninformed country moves first and the informed country moves second. Moreover, ex-post social welfare under asymmetric information can become larger than that under complete information, because the uninformed country chooses a less aggressive tax rate under asymmetric information. These results depend on the type of uncertainty, and capital ownership and share.

Keywords: Tax competition; Endogenous leadership; Asymmetric information; Pooling equilibrium; Welfare improvement (search for similar items in EconPapers)
JEL-codes: D82 H30 H87 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2020-08, Revised 2022-09
New Economics Papers: this item is included in nep-pbe
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Downloads: (external link) Revised version, 2022 (application/pdf)

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