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Endogenizing Government's Objectives in Tax Competition with Capital Ownership

Author

Listed:
  • Keisuke Kawachi

    (Faculty of Humanities, Law and Economics, Mie University)

  • Hikaru Ogawa

    (Faculty of Economics and Graduate School of Public Pol- icy, University of Tokyo)

  • Taiki Susa

    (College of Business Administration and Information Science, Chubu University)

Abstract

In this paper, we extend the standard approach of horizontal tax competition by endogenizing the policy objectives that governments pursue. Following the literature on strategic delegation games, we consider a preplay stage, where jurisdictions commit themselves to act as Leviathan or as benevolent agents. We show that the sub-game perfect equilibria (SPEs) correspond to the three cases of tax competition between (i) the Leviathan and the benevolent government, (ii) both Leviathans, and (iii) both benevolent governments, depending on the form of capital ownership. The results provide grounds for the assumption of government objective made in literature, and explain why some governments behave as Leviathans, while others as benevolent agents in international tax competition.

Suggested Citation

  • Keisuke Kawachi & Hikaru Ogawa & Taiki Susa, 2017. "Endogenizing Government's Objectives in Tax Competition with Capital Ownership," CIRJE F-Series CIRJE-F-1054, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2017cf1054
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    References listed on IDEAS

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    4. Yuya Kikuchi & Toshiki Tamai, 2024. "Unemployment and endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 533-551, April.
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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