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Interactions between government and firms: a differential game approach

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  • Jorge Navas
  • Jesús Marín-Solano

Abstract

In this paper we study an extended version of the model described in Gradus (J. Econ. 81:1092–1109, 1989 ) in order to determine the optimal taxation policy of a government and its effects on the stock of capital goods growth as a result of the activity developed by firms. It is shown that, by introducing a wealth tax, there exists an optimal wealth tax rate for which the open-loop/feedback Nash/Stackelberg equilibria coincide, maximizing the payments for both agents (government and firms), so that the open-loop Stackelberg equilibrium becomes both time consistent and subgame perfect. Copyright Springer Science+Business Media, LLC 2008

Suggested Citation

  • Jorge Navas & Jesús Marín-Solano, 2008. "Interactions between government and firms: a differential game approach," Annals of Operations Research, Springer, vol. 158(1), pages 47-61, February.
    • Handle: RePEc:spr:annopr:v:158:y:2008:i:1:p:47-61:10.1007/s10479-007-0248-3
    DOI: 10.1007/s10479-007-0248-3
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    References listed on IDEAS

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    1. Gradus, R.H.J.M., 1988. "A differential game between government and firms : : A non-cooperative approach," Other publications TiSEM 0ad210a1-660c-4e14-93f1-8, Tilburg University, School of Economics and Management.
    2. de Zeeuw, A.J., 1992. "Note on 'Nash and Stackelberg solutions in a differential game model of capitalism," Other publications TiSEM 77f5df26-27ff-4791-9231-4, Tilburg University, School of Economics and Management.
    3. Pohjola, Matti, 1983. "Nash and stackelberg solutions in a differential game model of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 6(1), pages 173-186, September.
    4. de Zeeuw, Aart, 1992. "Note on 'Nash and Stackelberg solutions in a differential game model of capitalism'," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 139-145, January.
    5. Shimomura, Koji, 1991. "The feedback equilibria of a differential game of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 317-338, April.
    6. Seierstad, Atle, 1993. "The dynamic efficiency of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 877-886.
    7. Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
    8. Carlos González-Alcón & Joaquín Sicilia & José Álvarez, 1998. "Cooperative solutions in an economic growth game," Annals of Operations Research, Springer, vol. 84(0), pages 209-230, December.
    9. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, November.
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    Cited by:

    1. Jesus Marin-Solano & Jorge Navas, 2009. "A note on the coincidence between Stackelberg and Nash equilibria in a differential game between government and firms," Working Papers in Economics 214, Universitat de Barcelona. Espai de Recerca en Economia.
    2. Roy Cerqueti & Raffaella Coppier, 2016. "A game theoretical analysis of the impact of income inequality and ethnic diversity on fiscal corruption," Annals of Operations Research, Springer, vol. 243(1), pages 71-87, August.

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