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Endogenous Timing in Tax Competition: The Effect of Asymmetric Information

Author

Listed:
  • Takaaki Hamada

    (Faculty of Economics, Toyo University and Junior Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN)

Abstract

This study explores the effects of asymmetric information on endogenous leadership in a simple tax competition environment (Ogawa, 2013). The study models a two-country economy where one country is informed about its own and opponent's productivity of private goods, while the other country knows only its own productivity. The results show that each type of informed country has an incentive to pretend to be the other type, which leads to a Stackelberg outcome endogenously, while the simultaneous move is the unique outcome under complete information. Under the Stackelberg outcome, the uninformed country moves first and the informed country moves second. Moreover, ex-post social welfare under asymmetric information can become larger than that under complete information, because the uninformed country chooses a less aggressive tax rate under asymmetric information. These results depend on the type of uncertainty, and capital ownership and share.

Suggested Citation

  • 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.
    • Handle: RePEc:kob:dpaper:dp2020-22
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2020-22.pdf
    File Function: Revised version, 2022
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    References listed on IDEAS

    as
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    5. 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.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Tax competition; Endogenous leadership; Asymmetric information; Pooling equilibrium; Welfare improvement;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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