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Asymmetric tax competition in the presence of lobbying

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  • Yu-Bong Lai

Abstract

This paper incorporates the influence of interest groups into the asymmetric tax competition model to explain the phenomenon that small countries do not necessarily set lower capital tax rates than large countries. In addition to the efficiency effect considered by the standard model, which leads the smaller country to set a lower capital tax rate, this present paper also takes account of the political effect arising from lobbying. We show that the smaller country may face less downward political pressure. If the political effect outweighs the efficiency effect, then the smaller country sets a higher tax rate than the larger country. This result has several welfare implications, which are in contrast to the conventional consequences. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Yu-Bong Lai, 2014. "Asymmetric tax competition in the presence of lobbying," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 66-86, February.
    • Handle: RePEc:kap:itaxpf:v:21:y:2014:i:1:p:66-86
    DOI: 10.1007/s10797-012-9258-4
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    References listed on IDEAS

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    Cited by:

    1. Atsushi Yamagishi, 2019. "Transboundary pollution, tax competition and the efficiency of uncoordinated environmental regulation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(3), pages 1165-1194, August.
    2. Kato, Hayato, 2015. "Lobbying and Tax Competition in an Agglomeration Economy: A Reverse Home Market Effect," CCES Discussion Paper Series 56, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    3. Satoshi Kasamatsu & Daiki Kishishita, 2021. "Tax competition and political agency problems," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(4), pages 1782-1810, November.
    4. Hayato Kato, 2018. "Lobbying and tax competition in an oligopolistic industry: a reverse home-market effect," Spatial Economic Analysis, Taylor & Francis Journals, vol. 13(3), pages 276-295, July.

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    More about this item

    Keywords

    Capital mobility; Globalization; Interest groups; Political economy; Public good; Tax competition; F21; H41; H73;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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