Endogenizing governments' objectives in tax competition

Susa

2017

Economics & Politics

This study examines asymmetric tax competition under representative democracy systems. The findings show that the degree of asymmetry between countries affects the result of elections in each country, where the citizens select a policy-maker to set a tax rate for the country. In particular, under certain conditions, a decisive voter in the election can select a citizen whose share of the country's capital is higher than the decisive voter's own share.

supporting

confidence: 91%

Strategic delegation in asymmetric tax competition

Susa

2017

Economics & Politics

“…Figure 1 presents the main results of our analysis. Assuming δ = 0. two governments act as Leviathans, which reproduces the findings by Pal and Sharma (2013). In contrast, when δ is sufficiently high, the argument by Pal and Sharma does not hold.…”

Section: Sub-game Perfect Nash Equilibriasupporting

confidence: 64%

“…The study of Pal and Sharma (2013), which endogenizes objective functions of countries in a tax competition model, is closely related to our own study. Following Vickers (1985), Fershtman and Judd (1987), and Sklivas (1987), they consider strategic incentive delegation in the context of a two-stage tax competition.…”

Section: Introductionmentioning

confidence: 91%

“…Residents in capital-exporting countries try to raise the price of capital to increase their income from capital exports, whereas the residents in capital-importing countries try to lower the price of capital to reduce their import costs. When there are dissimilar incentives to manipulate the price of capital, the citizens in different countries set different objectives for the policymakers, which is different from the results of Pal and Sharma (2013).…”

Section: Introductionmentioning

confidence: 96%

“…Even though the countries with different characteristics pursue the same objective, the means for achieving the goals are different. While one country may set objective other than welfare maximization, as shown in Pal and Sharma (2013), resulting in maximizing the citizen's welfare, other countries may directly try to achieve its ultimate goal. Since the different governments have to "manipulate" the economic factors to achieve their objectives in different ways, the target in their policy settings can be chosen strategically and will be different for each country.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Endogenizing government’s objectives in tax competition with capital ownership

Kawachi

Susa

2018

Int Tax Public Finance

In this paper, we extend the standard approach of horizontal tax competition by endogenizing the policy objectives that governments pursue. Following the literature on strategic delegation games, we consider a preplay stage, where jurisdictions commit themselves to act as Leviathan or as benevolent agents. We show that the sub-game perfect equilibria (SPEs) correspond to the three cases of tax competition between (i) the Leviathan and the benevolent government, (ii) both Leviathans, and (iii) both benevolent governments, depending on the form of capital ownership. The results provide grounds for the assumption of government objective made in literature, and explain why some governments behave as Leviathans, while others as benevolent agents in international tax competition.

Indirect taxes in a cross-border shopping model: a monopolistic competition approach

Aiura

2019

J Econ

Within the framework of cross-border shopping with monopolistic competition, we examine the relative merits of an ad valorem (ADV) tax and a unit (specific) tax as indirect tax methods. Our study focuses on how the opening of borders and the entry of firms affect the equilibrium under each tax method. Our findings reveal that the ADV tax method is superior to the unit tax method in terms of tax revenue and welfare. In addition, while the entry of firms and opening of borders reduce the dominance of tax revenue under the ADV tax method, they increase the method's merits from a welfare perspective.