Symmetric tax competition and welfare with footloose capital

Bibliographic Data

ID21353032
AuthorsDao‐Zhi Zeng (0000-0003-3348-3574, Graduate School of Information Sciences Tohoku University Sendai Japan, corresponding author), Shin‐Kun Peng (0000-0002-2942-366X, Institute of Economics Academia Sinica Taipei Taiwan)
Year2021
Volume61
Issue2
Pages472-491
Publication date2021-03-01
Open AccessYes
TypeARTICLE
VenueJournal of Regional Science (JOURNAL)
Journal identifiersISSN: 0022-4146 • E-ISSN: 1467-9787
PublisherWiley (PUBLISHER • GB)
DOI10.1111/jors.12517
OpenAlexW3108525716
LanguageEN
Citations received1
References cited31

This paper examines the tax competition for mobile capital between two symmetric countries in a monopolistic competition economy. Taxation generates its own distortions of location and consumption as long as consumers/governments deviate from the symmetric equilibrium. Taking all possible distortions into account, this paper finds that the equilibrium tax rate may be positive and increasing when trade costs are high while it is negative and decreasing when trade costs are low if consumers have additively separable preferences displaying an increasing relative love for variety. This nonmonotonic relationship of tax rate with trade costs is further accompanied by welfare loss when market integration starts. The procompetitive effect and the income effect are both crucial to deriving the results

Ad valorem tax · Capital (architecture) · Competition (biology) · Consumption (sociology) · Double taxation · Economics · International economics · Market economy · Microeconomics · Monetary economics · Monopolistic competition · Monopoly · Public economics · Symmetric equilibrium · Tax competition · Welfare · Corporate Taxation and Avoidance · Fiscal Policy and Economic Growth · Local Government Finance and Decentralization

Tools

Open DOI