Tax Competition When Governments Lack Commitment: Excess Capacity as a Countervailing Threat

Janeba, Eckhard

doi:10.1257/aer.90.5.1508

Cited by 81 publications

(53 citation statements)

References 11 publications

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“…It does not sacrifice tax revenue on immobile old capital when choosing a low tax. The strategic implications are similar in nature to those analysed in the context of tax competition for mobile and immobile tax bases in a static framework (as in Janeba andPeters 1999, andMarceau, Mongrain andWilson 2007). Our dynamic framework raises additional issues, as attracting the new FDI in a given period will alter the incentives for competition in future periods, but the intution from a static analysis carries over: the country with the high stock of old (immobile) capital chooses a higher expected tax rate than its competitor.…”

Section: Introductionmentioning

confidence: 67%

“…3 The aspect of inter-country competition comes into play in Janeba (2000) who shows that building up excess capacity in different countries may allow a multinational enterprise to react elastically to extortionary taxation by shifting its production and profits to the locations with low taxes. Janeba's intriguing mechanism is related in spirit to Kehoe (1989) who argues that tax competition between regions may resolve the hold-up problems in the context of time consistent capital taxation.…”

Section: Related Literaturementioning

confidence: 99%

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Competition for FDI with Vintage Investment and Agglomeration Advantages

Konrad

Kovenock

2010

SSRN Journal

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Countries compete for new FDI investment, whereas stocks of FDI generate agglomeration benefits and are potentially subject to extortionary taxation. We study the interaction between these aspects in a simple vintage capital framework with discrete time and an infinite horizon, focussing on Markov perfect equilibrium. We show that the equilibrium taxation destabilizes agglomeration advantages. The agglomeration advantage is valuable, but is exploited in the short run. The tax revenue in the equilibrium is substantial, and higher on "old" FDI than on "new" FDI, even though countries are not allowed to use discriminatory taxation. If countries can provide fiscal incentives for attracting new firms, this stabilizes existing agglomeration advantages, but may erode the fiscal revenue in the equilibrium.JEL Codes: Dynamic tax competition, vintage capital, agglomeration, foreign direct investment, bidding for firms

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Section: Introductionmentioning

confidence: 67%

Section: Related Literaturementioning

confidence: 99%

Competition for FDI with Vintage Investment and Agglomeration Advantages

Konrad

Kovenock

2010

SSRN Journal

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“…Facing this incompleteness, partial coordination may result in even fiercer tax competition via tax instruments still under local discretion; see Crémer and Gahvari (2000). 24 See Kehoe (1989), Janeba (2000), and Perroni and Scharf (2001) for a related cautious argument on the desirability of federally-mediated policy coordination.…”

mentioning

confidence: 99%

Tax competition in a fiscal union with decentralized leadership

Köthenbürger

2004

Journal of Urban Economics

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This paper examines capital tax competition in the presence of an interstate transfer policy without federal commitment. Lack of commitment implies that tax policy is chosen prior to federal transfers. The paper's main result is that ex-post federal policy internalizes horizontal fiscal externalities, insulating tax policy from capital mobility. Federal policy, however, introduces a new source of inefficiency unrelated to tax competition. Specifically, ex-post transfer payments prove to be equivalent to an interstate revenue-sharing system which may render federal intervention in the presence of fiscal externalities welfare-deteriorating relative to tax competition. JEL Code: H7, H3, H1.

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“…Thus, contrary to the classic hold-up problem of taking too much ex post, which typically has negative consequences for the host country, the inability to commit to provide local resources can benefit host countries if there is more than a single use for local resources. Our analysis also relates in an interesting way to the study of Janeba (2000). He shows that investors can overcome the hold-up problem by investing in access capacity in an alternative location.…”

mentioning

confidence: 74%

Competition for natural resources and the hold‐up problem

Hefeker

Kessing

2017

Canadian J of Economics

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We study the role of competition for the hold-up problem in foreign direct investment in resource-based industries. The host country government is not only unable to commit not to expropriate investment ex post but also unable to commit to the provision of local resources. In the case of competition for local resources, this dual commitment problem triggers higher investment levels and increases host country revenues, but hurts profits of international investors.Résumé. Concurrence pour les ressources naturelles et le problème du hold-up. Les auteurs étudient le r ôle de la concurrence pour le problème du hold-up dans l'investissement direct de l'étranger dans les industries basées sur les ressources naturelles. Le gouvernement du pays h ôte est incapable non seulement de s'engager à ne pas exproprier l'investissement ex post mais est aussi incapable de s'engager à fournir les ressources locales. Dans le cas de concurrence pour les ressources locales, ce double problème d'engagement enclenche des niveaux d'investissements plus élevés et accroît les revenus du pays hôte, mais réduit les profits des investisseurs internationaux.

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Tax Competition When Governments Lack Commitment: Excess Capacity as a Countervailing Threat

Cited by 81 publications

References 11 publications

Competition for FDI with Vintage Investment and Agglomeration Advantages

Competition for FDI with Vintage Investment and Agglomeration Advantages

Tax competition in a fiscal union with decentralized leadership

Competition for natural resources and the hold‐up problem

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