Cross border mergers and strategic trade policy with two-part taxation: is international policy coordination beneficial?

Grenzüberschreitende Fusionen und strategische Handelspolitik mit zweiseitiger Besteuerung: Ist eine internationale Koordination sinnvoll?

Kjell Lommerud (), Trond Olsen and Odd Rune Straume

Discussion Papers, Research Unit: Market Processes and Governance from WZB Berlin Social Science Center

Abstract: We analyse how national taxation of firms are likely to affect merger incentives in international markets. In particular, we ask whether non-coordinated trade policies stimulate cross-border mergers that are overall inefficient, and if this is then an argument for international coordination of such policies? We address this issue in a setting where policy makers use two-part tariffs to tax exporting firms. The analysis reveals that while non-coordinated policies may induce cross-border mergers (by allowing the firms in question to play national policy makers out against each other), this can nevertheless be overall welfare enhancing compared to market outcomes under coordinated policy making.

Keywords: Strategic trade policy; two-part taxation; endogenous merger; policy coordination (search for similar items in EconPapers)
JEL-codes: F13 L13 L41 L50 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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