HOTELLING TAX COMPETITION

Myrna Wooders and Benjamin Zissimos

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper shows how competition among governments for mobile firms can bring about excessive differentiation in levels of taxation and public good provision. Hotelling’s Principle of Minimum Differentiation is applied in the context of tax competition and shown to be invalid. Instead, when an equilibrium exists, differentiation of public good provision is maximized. Non-existence of equilibrium, which can occur, is a metaphor for intense tax competition. The paper also shows that, to some extent, perfect tax discrimination presents a solution to the existence problem created by Hotelling tax competition, but that the efficiency problem of Hotelling tax competition is exacerbated.

Keywords: amenity competition; Hotelling; limit tax; perfect tax discrimination; single peaked profit function; tax competition. (search for similar items in EconPapers)
Pages: 56 pages
Date: 2003
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Citations: View citations in EconPapers (7)

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https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp668.pdf

Related works:
Working Paper: Hotelling Tax Competition (2003)
Working Paper: Hotelling Tax Competition (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:668

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