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Tax Uniformity: A Commitment Device for Restraining Opportunistic Behavior

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  • GERDA DEWIT
  • DERMOT LEAHY

Abstract

We show that uniform and differentiated tax systems diverge in their propensity to generate distortionary opportunistic behavior. First, when firms choose investment before the government can commit to its taxes, the tax scheme creates strategic incentives for firms to distort their investment. Second, a system of differentiated taxes has a greater propensity to foster strategic distortions in investment than a uniform tax regime. While the paper makes these points in a set-up in which polluting firms face an emission tax and invest in abatement, the main message is shown to hold for a wide class of tax policy games.

Suggested Citation

  • Gerda Dewit & Dermot Leahy, 2015. "Tax Uniformity: A Commitment Device for Restraining Opportunistic Behavior," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(5), pages 641-672, October.
    • Handle: RePEc:bla:jpbect:v:17:y:2015:i:5:p:641-672
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    Cited by:

    1. Xuexian Gao & Haidong Zheng, 2017. "Environmental Concerns, Environmental Policy and Green Investment," IJERPH, MDPI, vol. 14(12), pages 1-13, December.

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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