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This study examines asymmetric tax competition under representative democracy systems. The findings show that the degree of asymmetry between countries affects the result of elections in each country, where the citizens select a policy-maker to set a tax rate for the country. In particular, under certain conditions, a decisive voter in the election can select a citizen whose share of the country's capital is higher than the decisive voter's own share.

In this paper, we extend the standard approach of horizontal tax competition by endogenizing the policy objectives that governments pursue. Following the literature on strategic delegation games, we consider a preplay stage, where jurisdictions commit themselves to act as Leviathan or as benevolent agents. We show that the sub-game perfect equilibria (SPEs) correspond to the three cases of tax competition between (i) the Leviathan and the benevolent government, (ii) both Leviathans, and (iii) both benevolent governments, depending on the form of capital ownership. The results provide grounds for the assumption of government objective made in literature, and explain why some governments behave as Leviathans, while others as benevolent agents in international tax competition.

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