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Lobbying and tax competition in an oligopolistic industry: a reverse home-market effect

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  • Hayato Kato

Abstract

This paper studies tax competition between two asymmetrical countries for an oligopolistic industry with many firms. Each government sets its tax rate strategically to maximize the weighted sum of residents’ welfare and political contributions by owners of firms. It is shown that if the governments care deeply about contributions and trade costs are low, the small country attracts a more than proportionate share of firms by setting a lower tax rate. The well-known home-market effect, which states that countries with a larger market attract a more-than-proportionate share of firms, may be reversed as a result of tax competition by politically interested governments.

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  • 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.
    • Handle: RePEc:taf:specan:v:13:y:2018:i:3:p:276-295
    DOI: 10.1080/17421772.2018.1425477
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    Cited by:

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    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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