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Public Goods and Tax Competition in a Two-Sided Market

Author

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  • Christos Kotsogiannis

    (Department of Economics, University of Exeter)

  • Konstantinos Serfes

    (Department of Economics and International Business, Bennett S. LeBow College of Business, Drexel University)

Abstract

A rather neglected issue in the tax competition literature is the dependence of equilibrium outcomes on the presence of firms and shoppers (two-sided markets). Making use of a model of vertical and horizontal differentiation, within which jurisdictions compete by providing public goods and levying taxes in order to attract firms and shoppers, this paper characterizes the non-cooperative equilibrium. It also evaluates the welfare implications for the jurisdictions of a popular policy of tax coordination: The imposition of a minimum tax. It is shown that the interaction of the two markets affects the intensity of tax competition and the degree of optimal vertical differentiation chosen by the competing jurisdictions. Though the non-cooperative equilibrium is, as it is typically the case, inefficient such inefficiency is mitigated by the strength of the interaction in the two markets. A minimum tax policy is shown to be effective when the strength of the interaction is weak and ineffective when it is strong.

Suggested Citation

  • Christos Kotsogiannis & Konstantinos Serfes, 2008. "Public Goods and Tax Competition in a Two-Sided Market," Discussion Papers 0808, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:0808
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    References listed on IDEAS

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    3. Francis Bloch & Gabrielle Demange, 2021. "Profit-splitting rules and the taxation of multinational digital platforms," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(4), pages 855-889, August.
    4. Tanja Greiner & Marco Sahm, 2011. "How Effective are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," CESifo Working Paper Series 3524, CESifo.
    5. Pal, Rupayan & Sharma, Ajay, 2013. "Endogenizing governments' objectives in tax competition," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 570-578.
    6. Pan, Lijun, 2017. "Endogenous Choice On Advertising Pricing Of Media Platforms: Lump-Sum Fee Vs. Proportional Fee," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 58(1), pages 21-40, June.
    7. Rupayan Pal & Ajay Sharma, 2011. "Competition for foreign capital: Endogenous objective, public investment and tax," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-021, Indira Gandhi Institute of Development Research, Mumbai, India.
    8. Paul Belleflamme & Eric Toulemonde, 2016. "Tax Incidence on Competing Two-Sided Platforms: Lucky Break or Double Jeopardy," CESifo Working Paper Series 5882, CESifo.
    9. 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.
    10. Sahm, Marco & Greiner, Tanja, 2016. "How Effective Are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," VfS Annual Conference 2016 (Augsburg): Demographic Change 145724, Verein für Socialpolitik / German Economic Association.
    11. Thomas A. Gresik & Kai A. Konrad, 2017. "Tax Havens, Accounting Experts, and Fee-Setting Rules," CESifo Working Paper Series 6774, CESifo.
    12. Greiner, Tanja & Sahm, Marco, 2018. "How effective are advertising bans? On the demand for quality in two-sided media markets," Information Economics and Policy, Elsevier, vol. 43(C), pages 48-60.

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    More about this item

    Keywords

    Public goods; Tax competition; Two-Sided Market; Vertical Differentiation;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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