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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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1935-1682
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Volume 17, Issue 1 (Feb 2017)

Issues

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

Endogenous Leadership in Tax Competition: A Combination of the Effects of Market Power and Strategic Interaction

Jiancai Pi / Xuyang Chen
Published Online: 2017-02-09 | DOI: https://doi.org/10.1515/bejeap-2016-0191

Abstract

This paper extends Kempf and Rota-Graziosi (2010, “Endogenizing Leadership in Tax Competition.” Journal of Public Economics 94 (9):768–776) and Hindriks and Nishimura (2015, “A Note on Equilibrium Leadership in Tax Competition Models.” Journal of Public Economics 121:66–68) by jointly considering the effects of market power and strategic interaction in tax competition. We depict the regional asymmetry as different slopes and different vertical intercepts of the inverse demand for capital. In our setup, the risk-dominant equilibrium in which the large region leads is regained. Moreover, dissimilar to Kempf and Rota-Graziosi (2010, “Endogenizing Leadership in Tax Competition.” Journal of Public Economics 94 (9):768–776) and Hindriks and Nishimura (2015, “A Note on Equilibrium Leadership in Tax Competition Models.” Journal of Public Economics 121:66–68), we show that with a large market demand and a low capital endowment, the leadership by the large region can still be Pareto-dominant even if the asymmetry is very small.

Keywords: tax competition; endogenous timing; strategic interaction; regional asymmetry

JEL Classification: C72; H30; H87

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About the article

Published Online: 2017-02-09


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2016-0191.

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