Is tax competition necessarily a Race to the bottom? Optimal tax rate trajectories in the model of tax competition for different objective functions

Dmytro Sokolovskyi ()

MPRA Paper from University Library of Munich, Germany

Abstract: The work is devoted to research government tax behavior in tax competition conditions. In detail we study followed issues: is necessarily tax competition lead to Race to the bottom & is possible a simultaneous optimum of tax rate for both economies? This work is the continuation of research about, is it necessarily a Race to the bottom Prisoner’s dilemma. Available studies of tax competition generally focus on the analysis, which countries are inherent the trend to tax rate decrease, can this trend be considered a Race to the bottom, but if not, what are the reasons, that a Race to the bottom is not observed? The difference of the proposed work is that we do not consider additional, though important factors. The optimization model of tax competition for 2 economies evidence that even for one factor – the generalized tax burden, without the separation of income tax and “compensatory” taxes, such as taxes on consumption, labor, environment – a Race to the bottom is not necessarily. Under different conditions, the trend can be directed as to decrease as to increase of tax rate. So, it can be argued that tax competition not necessarily leads to Race to the bottom, as well as Race to the bottom is not necessarily modeled by Prisoner’s dilemma. The obtained results can help understand why some countries do not always follow the general trend to tax rate decrease. In addition, it explains not always the optimal tax behavior of some countries those in this way cause a change in the trend in competitors.

Keywords: tax competition; race to the bottom; prisoner’s dilemma; tax rate trajectory; modelling (search for similar items in EconPapers)
JEL-codes: C6 E62 H30 (search for similar items in EconPapers)
Date: 2021-08-21
New Economics Papers: this item is included in nep-isf, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/109284/1/MPRA_paper_109284.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109284

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().