Equilibrium Leadership in Tax Competition Models with Capital Ownership : A Rejoinder
(2017) International Tax and Public Finance — Vol. 24, n° 2, p. 338-349 (2017)
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- Abstract
- This paperr econciles two opposite results in the tax competition literature. Kempf and Rota-Graziosi (J Public Econ 94(9–10):768–776, 2010) and Hindriks and Nishimura (J Public Econ 121:66–68, 2015) have shown that the two Stackelberg outcomes prevail as the subgame perfect equilibria when capital is entirely owned by nonresidents. However, Ogawa (Int Tax Public Finance 20(3):474–484, 2013) has shown that the simultaneous-move outcome prevails when capital is entirely owned by residents. We develop a model in which capital ownership can vary freely between these two polar cases. We show that there exists a unique degree of residential capital ownership such that the equilibrium switches from the Stackelberg to the simultaneous-move outcomes. The chance for the simultaneous-move outcome to prevail increases with the extent of production asymmetry between regions. Partial ownership also induces a novel effect of tax leadership that we call the preference reversion effect.
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Hindriks, J., & Nishimura, Y. (2017). Equilibrium Leadership in Tax Competition Models with Capital Ownership : A Rejoinder. International Tax and Public Finance, 24(2), 338-349. https://doi.org/10.1007/s10797-016-9421-4 (Original work published 2017)