Capital Tax Competition and Returns to Scale

John Burbidge and Katherine Cuff

No 3002, Working Papers from University of Waterloo, Department of Economics

Abstract: That some capital importing regions subsidize units of capital is inconsistent with the standard models of the capital tax competition literature. We maintain the assumption of capital homogeneity and relax the assumption of constant returns to scale. Among other things, we show that symmetric regions in a Nash equilibrium may subsidize capital as may a capital importing region in an asymmetric Nash equilibrium. We also prove that any ine.ciencies in asymmetric Nash equilibria with both capital and head taxes arise entirely from regions’ incentives to manipulate the terms of trade, and not from increasing returns. We also show the result that small regions win tax competitions in Nash equilibria with capital taxes only may not hold with increasing returns.

Date: 2002-08, Revised 2003-09
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Related works:
Journal Article: Capital tax competition and returns to scale (2005)
Working Paper: Capital Tax Competition and Returns to Scale (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wat:wpaper:03002

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