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Equilibrium leadership in tax competition models with capital ownership: a rejoinder

Author

Listed:
  • Jean Hindriks

    (Université catholique de Louvain)

  • Yukihiro Nishimura

    (Osaka University)

Abstract

This paper reconciles two opposite results in the tax competition literature. Kempf and Rota-Graziosi (J Public Econ 94(9–10):768–776, 2010) and Hindriks and Nishimura (J Public Econ 121:66–68, 2015) have shown that the two Stackelberg outcomes prevail as the subgame perfect equilibria when capital is entirely owned by nonresidents. However, Ogawa (Int Tax Public Finance 20(3):474–484, 2013) has shown that the simultaneous-move outcome prevails when capital is entirely owned by residents. We develop a model in which capital ownership can vary freely between these two polar cases. We show that there exists a unique degree of residential capital ownership such that the equilibrium switches from the Stackelberg to the simultaneous-move outcomes. The chance for the simultaneous-move outcome to prevail increases with the extent of production asymmetry between regions. Partial ownership also induces a novel effect of tax leadership that we call the preference reversion effect.

Suggested Citation

  • Jean Hindriks & Yukihiro Nishimura, 2017. "Equilibrium leadership in tax competition models with capital ownership: a rejoinder," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 338-349, April.
    • Handle: RePEc:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9421-4
    DOI: 10.1007/s10797-016-9421-4
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    Citations

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    Cited by:

    1. Hikaru Ogawa & Atsushi Yamagishi, 2016. "Ad Valorem Capital Tax Competition," CIRJE F-Series CIRJE-F-1030, CIRJE, Faculty of Economics, University of Tokyo.
    2. Yukihiro Nishimura & Kimiko Terai, 2021. "Electoral Commitment in Asymmetric Tax-competition Models," Discussion Papers in Economics and Business 20-21, Osaka University, Graduate School of Economics.
    3. Takaaki Hamada, 2020. "Endogenous Timing in Tax Competition: The Effect of Asymmetric Information," Discussion Paper Series DP2020-22, Research Institute for Economics & Business Administration, Kobe University, revised Sep 2022.
    4. Hikaru Ogawa & Taiki Susa, 2017. "Majority voting and endogenous timing in tax competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(3), pages 397-415, June.
    5. Jean Hindriks & Yukihiro Nishimura, 2021. "Taxing multinationals: The scope for enforcement cooperation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 487-509, June.
    6. Kawachi, Keisuke & Ogawa, Hikaru & Susa, Taiki, 2020. "Endogenous capital supply and equilibrium leadership in tax competition," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 622-634.
    7. Jun‐ichi Itaya & Chikara Yamaguchi, 2023. "Endogenous leadership and sustainability of enhanced cooperation in a repeated interactions model of tax competition: Endogenous leadership in tax competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(2), pages 276-300, April.
    8. Magnus Hoffmann & Grégoire Rota‐Graziosi, 2020. "Endogenous timing in the presence of non‐monotonicities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 359-402, February.
    9. Haraguchi Junichi & Ogawa Hikaru, 2018. "Leadership in Tax Competition with Fiscal Equalization Transfers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(3), pages 1-15, July.
    10. Yukihiro Nishimura & Kimiko Terai, 2021. "Electoral Commitment in Asymmetric Tax-competition Models," Discussion Papers in Economics and Business 20-21-Rev., Osaka University, Graduate School of Economics.
    11. Sharma, Ajay & Pal, Rupayan, 2019. "Nash equilibrium in tax and public investment competition," International Review of Economics & Finance, Elsevier, vol. 62(C), pages 106-120.
    12. Yukihiro Nishimura & Kimiko Terai, 2016. "The Direction of Strategic Delegation and Voter Welfare in Asymmetric Tax Competition Models," Discussion Papers in Economics and Business 16-27, Osaka University, Graduate School of Economics.
    13. Takaaki Hamada, 2023. "Endogenous timing in tax competition: The effect of asymmetric information," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(3), pages 570-614, June.

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    More about this item

    Keywords

    Endogenous timing; Tax competition; Capital ownership;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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