This contribution investigates fiscal coordination in the framework of two countries asymmetric in respect of their capital-labor endowment. When tax policies are decided by majority voting inside each country, and they are not coordinated at a supranational level, factors of production are inefficiently allocated, at equilibrium. Our main result shows that fiscal coordination, via a minimum capital tax, does not always lead to a Pareto-improvement for the median voter's welfare, with respect to the noncooperative outcome.

imperfect competition, strategic market game, commodity taxation, H22, L13, C72, D51,

Tax competition, Mobility of factors of production, Fiscal federalism, H23, H77, H87,

We investigate the effectiveness of tax and transfer policies in correcting market distortions when the economy is imperfectly competitive. We perform this analysis in the context of an exchange model representing bilateral oligopoly situations, which constitute particular examples of Shapley-Shubik strategic market games.

The use of general descriptive names. registered names. trademarks. etc. in this publication does noi imply. even in the absence of a specific statement. that such names are exempt from the relevant protective laws and reguIations and therefore free for general use.