And the tax winner is... A note on endogenous timing in the commodity taxation race

Hubert Kempf () and Grégoire Rota-Graziosi ()
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Grégoire Rota-Graziosi: CERDI, Université d'Auvergne
Authors registered in the RePEc Author Service: Grégoire ROTA GRAZIOSI

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: This note investigates the endogenous choice of leadership in commodity tax competition. We apply an endogenous timing game, where jurisdictions commit themselves to lead or to follow, to the Kanbur and Keen (1993) model. We show that the Subgame Pefect Nash Equilibria (SPNE) correspond to the two Stackelberg situations, yielding to a coordination issue. Selecting an equilibrium by means of the risk-dominance criterion, we prove that the smaller country has to lead. If asymmetry among countries is sufficient Pareto-dominance reinforces risk-dominance in selecting the same SPE. We deduce two important results for the literature of tax competition: when countries differ sufficiently by their size, the "big-country-higher-tax" rule does not hold anymore; when countries are close in size, tax harmonization through a unique tax rate among countries occurs without any international agreement

Keywords: Commitment; commodity tax competition; strategic complements; Stackelberg Equilibrium; Pareto dominance; risk dominance (search for similar items in EconPapers)
JEL-codes: C72 H30 H87 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2010-05
New Economics Papers: this item is included in nep-acc and nep-pub
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Working Paper: And the tax winner is... A note on endogenous timing in the commodity taxation race (2010)
Working Paper: And the tax winner is... A note on endogenous timing in the commodity taxation race (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:10038

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