Foreign competition and optimal privatization with excess burden of taxation

We examine in a mixed oligopoly setting how foreign competition and the excess burden of taxation will affect privatization policy in the presence of strategic tax/subsidy policies. We show that in the presence of excess burden of taxation with foreign competitors, output subsidy coupled with import tariff and partial privatization is adopted to improve the social welfare. However, if the excess burden of taxation is relatively large, the government may switch to use production tax coupled with tariff policy and partial privatization to improve the social welfare.     

Commodity Taxation and the Effects of Entry: A Case of Variety Preferences

We study the relationship between commodity taxation and the effect of entry with imperfect competition. We develop a simple general equilibrium model with imperfect competition in which consumers have variety preferences. As a result, we see that introducing specific taxes increases social welfare. Furthermore, we show that the optimal tax rule is contrary to the inverse elasticity rule.Acknowledgement We wish to thank two anonymous referees for their helpful comments.     

Tax competition with parasitic tax havens

We develop a tax competition framework in which some jurisdictions, called tax havens, are parasitic on the revenues of other countries, and these countries use resources in an attempt to limit the transfer of tax revenue from capital taxation to the havens. We demonstrate that the full or partial elimination of tax havens would improve welfare in non-haven countries. We also demonstrate that the smaller countries choose to become tax havens, and we show that the abolition of a sufficiently small number of the relatively large havens leaves all countries better off, including the remaining havens. We argue that these results extend to the case where there are also taxes on wage income that involve administrative and compliance costs.     

国际税收竞争理论与实践对我国的启示

在我国日益融入全球经济的背景下，国际税收竞争理论与实践对我国税制建设具有一定的借鉴意义。应辩证认识国际税收竞争，立足国情，积极参与适度国际税收竞争，促进国家之间的税收协调，尽量避免恶性税收竞争；进一步完善税收立法、执法和司法体制，重新审视税收主权与协调。     

Tiebout with Politics: Capital Tax Competition and Constitutional Choices

This paper examines how capital tax competition affects jurisdiction formation. We describe a non-cooperative locational model of public goods provision choices, where the levels of taxation and the local public good varieties provided within jurisdictions are selected by majority voting, and where equilibrium jurisdictions consist of consumers with similar tastes. We show that interjurisdictional tax competition results in an enlargement of jurisdictional boundaries, and, even in the absence of intrajurisdictional transfers, can raise welfare for all members of a jurisdiction.     

The role of infrastructure investment and factor productivity in international tax competition

In this paper we use data from 30 developed economies from 1999 to 2014 to analyse the importance of infrastructure investments and factor productivity for explaining international capital tax competition. Our results indicate the existence of intensive tax competition in effective average corporate taxation during this period. It is also suggested that non-tax variables of third countries affect a country's corporate tax policy. Countries whose direct competitors have better infrastructures or are more productive compensate with lower capital taxation. In this way, their infrastructure investment and productivity-enhancing policies are used as strategic substitutes for capital taxation. With regard to the characteristics of closest competitors, we find that corporate tax competition is fiercer among countries that are characterized by similar infrastructure investments and geographical proximity.     

Market structure and casino taxation in tourist resorts

This article examines the association of tax effects with market structure for casino gaming. We show that if market structure is uncompetitive, much of casino taxation falls on tourists whose demand is inelastic relative to supply. The tax is likely to be efficient under strong external demand if imposed on oligopoly casinos with a monopoly location in a cross-border market. The likelihood of economically ‘good’ taxation is greater under oligopoly than under competition but lower than under monopoly. Casino taxes should be lowered in a more competitive market with weaker external demand. Our prediction is consistent with the evidence found from casino tourism development in Macao with ‘high’ gambling taxes.     

Tax Evasion, Tax Competition and the Gains From Nondiscrimination: the Case of Interest Taxation in Europe

This paper uses a game–theoretic approach to analyse the taxation of interest income in Europe in the presence of tax evasion. The model allows us to assess the success of various reform proposals. We argue that the tax treatment of nonresidents' interest income plays a crucial role. When decisions on discrimination and on withholding tax rates are made non-cooperatively, the outcome is similar to a prisoners' dilemma. All countries discriminate, but in equilibrium internationally mobile portfolio capital evades taxation successfully. In contrast, if all governments did not discriminate, tax competition leads to less tax evasion.     

Macroeconomic effects of an indirect tax substitution

We study an indirect tax reform in a general equilibrium model with imperfect competition for both the Cournot and the Free entry equilibria. We show that it is possible to attain a positive balanced budget multiplier by means of a substitution of specific by ad valorem taxation. Moreover, although any tax substitution causes higher prices and the flow up of firms in the long-run, the Free entry equilibrium output can increase with respect to that of the Cournot equilibrium. Finally, in contrast with the partial equilibrium, welfare decreasing tax reforms are likely to occur even when the balanced budget multiplier is positive.      

Implementing partial tax harmonization in an asymmetric tax competition game with repeated interaction

This paper investigates the conditions under which partial harmonization for capital taxation is sustained in a repeated interactions model of tax competition when there are three countries with heterogenous capital endowments. We show that regardless of the structure of the coalition (i.e., full or partial tax coordination), whether partial tax harmonization is sustainable or not crucially depends on the extent to which the capital endowment of the medium‐sized country is similar to that of the large or small country. The most noteworthy finding is that the closer the capital endowment of the median country is to the average one, the less likely the tax harmonization including the median country is to prevail and the more likely the partial tax harmonization excluding the median country is to prevail. We also show that partial tax harmonization makes the member countries of the tax union better off and non‐member countries worse off, which stands in sharpe contrast with previous studies, such as Konrad and Schjelderup (1999) and Bucovetsky (2009).     

International Commodity Taxation under Monopolistic Competition

We analyze non‐cooperative commodity taxation in a two‐country trade model characterized by monopolistic competition and international firm and capital mobility. In this setting, taxes in one country affect foreign welfare through the relocation of mobile firms and through changes in the rents accruing to capital owners. With consumption‐based taxation, these fiscal externalities exactly offset each other and the non‐cooperative tax equilibrium is Pareto efficient. With production‐based taxation, however, there are additional externalities on the foreign tax base and the foreign price level that lead non‐cooperative tax rates to exceed their Pareto efficient levels.     

Profit taxation and the mode of foreign market entry

Abstract This paper studies the role of profit taxation for an international firm's decision upon how to penetrate a foreign market – through exports or through foreign direct investment (FDI) and local supply. We show that with harmonized taxes the international firm may choose FDI even though this has welfare costs from a global point of view. With tax competition, the host country can enforce exporting instead of FDI. This leads to a Nash equilibrium associated with higher world welfare than harmonized taxes. Thus, because of the effect on entry mode, tax competition provides heretofore unexplored benefits as compared to tax harmonization.     

Taxation of Mobile Factors as Insurance under Uncertainty

This paper considers the effects of the taxation of mobile factors, i.e., capital, under uncertainty. The wages earned by residents of a jurisdiction are uncertain due to random shocks. Since the uncertain wages in a jurisdiction depend on the amount of mobile capital employed in the jurisdiction, and since taxation alters the quantity of capital employed, taxation affects the riskiness of uncertain wages. In particular, the taxation of capital moderates the fluctuation of uncertain wages, thereby providing insurance. For this reason, jurisdictions use distortionary capital taxation even if lump‐sum taxation is available. In addition, this insurance effect counteracts the tendency toward too low tax rates on capital arising from tax competition, and possibly improves the efficiency of tax competition.     

International commodity taxation in the presence of unemployment

In this paper, we evaluate the impact of commodity tax competition on welfare and employment under the destination and origin principles, when the labor market is imperfectly competitive owing to a binding fixed wage. Our main finding is that commodity taxation causes an employment externality whose signs may be opposite under the two principles. While tax competition leads to inefficient tax rates under both principles, we also prove that the origin principle guarantees lower unemployment and higher welfare when the fixed wage is high. Finally, we show that the employment externality still exists in a standard union model of wage determination.     

Fiscal Competition and Growth When Capital Is Imperfectly Mobile*

Is tax competition good for economic growth? We address this question using a simple model of endogenous growth. Governments in a system of many small jurisdictions benevolently maximize the welfare of immobile residents. Quadratic (de‐)installation costs limit the mobility of capital. We look at optimal taxation and long‐run growth, and we analyse the effects of cost parameter variations on taxation and growth. A race to the bottom in capital tax rates is only one possibility; the relationship between capital mobility and capital tax rates is not monotonic. Growth and capital mobility are unambiguously positively related.     

Symmetric tax competition and lobbying within federations

The present paper deals with the question of whether tax harmonization and federal taxation increase welfare in a symmetric tax competition framework with heterogeneous individuals and lobbying. A model closely related to the approach of Lai (2010) is linked to externalities that are familiar from conventional public finance. The observed deviations from efficient taxation are derived from the interplay of four externalities, which can be divided into two groups: externalities occurring due to tax competition and externalities which are caused by lobbying. Whether or not the centralization of tax competences is useful depends mainly on the relative sizes of the competition-induced and lobbying-induced externalities.     

Mixed duopoly,privatization, and subsidization with excess burden of taxation

We investigate optimal tax‐subsidy policies in mixed and private oligopolies with excess burden of taxation. We compare the optimal subsidies and the resulting welfare levels among four regimes: mixed and private Cournot duopolies and Stackelberg competition with public and private leaderships. We show that, in contrast to the existing works on the privatization neutrality theorem, privatization affects resulting welfare.     

Public investment,taxation, and long-run output in economies with multi-level governments

This paper examines the dynamic effects of taxation and investment on the steady state output level of an economy. A simple neoclassical growth model with different tiers of government is developed. The initial focus is on governments that aim to maximise their citizens' welfare and economic performance by providing consumption goods for private consumption and public capital for private production. It is shown that a long-run per capita output maximising tax rate can be derived and that there also exists an optimal degree of fiscal decentralisation. The analysis then extends to the case where governments attempt instead to maximise their own tax revenue to fund expenditures which do not contribute to the utility of their citizens. Three different cases of taxation arrangement are considered: tax competition, tax sharing, and tax coordination. The modeling shows that intensifying tax competition will lead to an increase in the aggregate tax rate as compared to the cases of sharing and coordination amongst governments. These tax rates are both higher than the long-run per capita output maximising rate that was implied under the welfare maximising government scenario.     

Progressive taxation and the intensity and timing of investment

This paper examines the effect of progressive taxation on a firm's investment intensity and timing decisions using a real options approach. The firm possesses a perpetual option to invest in a project at any instant by incurring an irreversible investment cost at that time. The amount of the irreversible investment cost determines the intensity of investment that augments the value of the project. Tax progression is specified in a particular case of a constant marginal tax rate with an exogenously given tax exemption threshold that makes the average tax rate increase with the tax base. We show that the firm's investment decisions are neutral to tax progression only when the exogenously given tax exemption threshold is sufficiently large. When tax neutrality does not hold, we show that progressive taxation has a perverse effect on investment intensity. Finally, we show that progressive taxation induces the firm to invest earlier as compared to the case under proportional taxation (i.e., in the absence of any tax exemption).     

Increasing Returns, Learning, and Beneficial Tax Competition

We analyze the welfare impact of entrepreneur mobility in a two‐country overlapping generations model. Increasing returns in production yield multiple equilibria that are stable under adaptive learning. Governments compete for the mobile resource by setting income taxes. We show that large welfare gains can arise from noncooperative taxation. If expectational barriers prevent the realization of high output equilibria, tax competition can sufficiently perturb expectations so that high steady states become attainable. Once in a high production regime, governments may institute cooperative tax increases or reductions so as to bring the economy to the global joint optimum without disturbing the regime.