International capital market and repeated tax competition

We propose an infinitely repeated game of tax competition with an endogenous capital supply. Our results show that the larger the capital supply elasticity to interest rates, the easier it is for interregional tax coordination within a country to be achieved. The capital supply elasticity is lower w...

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Bibliographic Details
Published in:Journal of public economic theory 2020-06, Vol.22 (3), p.751-768
Main Authors: Kasamatsu, Satoshi, Ogawa, Hikaru
Format: Article
Language:English
Subjects:
Capital markets
Economic theory
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Summary:We propose an infinitely repeated game of tax competition with an endogenous capital supply. Our results show that the larger the capital supply elasticity to interest rates, the easier it is for interregional tax coordination within a country to be achieved. The capital supply elasticity is lower when countries are less integrated into the international capital market, and vice versa. Thus, our finding suggests that the regions in the country with a lower (higher) degree of integration in the global market are less (more) likely to achieve tax coordination.
ISSN:1097-3923
1467-9779
DOI:10.1111/jpet.12417