Are regional asymmetries detrimental to tax coordination in a repeated game setting?

Abstract

This paper reexamines the main findings of Cardarelli et al. (2002), andContenaro andVidal (2006), who show that regional asymmetries undermine the implicit collusion of tax coordination in a repeated game model of capital tax competition. In particular, this paper investigates how increasing regional differences in the per capita capital endowments and/or production technologies affect the willingness of each region to cooperate in achieving tax coordination. It is shown not only that there may exist cases where tax coordination is facilitated with an increase in regional asymmetries increase and the greater the degree of asymmetry in terms of the net capital exports of the regions, but also that the higher the cooperation of the regions with respect to the sustenance of tax coordination.

Partial tax coordination in a repeated game setting

“…To facilitate explicit analytical solutions to our repeated interactions model, following Cardarelli et al (2002) and Itaya et al (2008), we assume a linear utility function such as…”

“…Cardarelli et al (2002) and Catenaro and Vidal (2006) utilize a repeated interactions model to demonstrate that coordinated …scal policies or tax harmonization is sustainable. More recently, Itaya et al (2008) show that as the regional asymmetries in capital net exporting positions, which is caused by regional di¤erences in endowments and/or production technologies, increase, regions are more likely to cooperate on capital taxes. Nevertheless, all these papers deal only with global tax coordination among all regions.…”

Minimum taxes and repeated tax competition

“…In particular, the speci…cation with quasilinear preferences and quadratic production functions of the tax competition model of Zodrow and Mieszkowski (1986) would exhibit strict concavity of V i (t; :::; t) and V i (t; t C i ). The model considered by Itaya, et al (2008) for their repeated tax-competition analysis, exhibiting a quadratic production function and linear utility, would also satisfy the above conditions, leaving V i (t; :::; t) linear and V i (t; t C i ) strictly concave.…”

Endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax

“…This function is often used in the literature on this field, for example, Wildasin (1991), Brueckner (2004, and Itaya, Okamura and Yamaguchi (2008). The marginal product of capital is f i k = a i − b i k i .…”