Strategic delegation in asymmetric tax competition

Ogawa, Hideoki; Susa, Taiki

doi:10.1111/ecpo.12092

Cited by 14 publications

(6 citation statements)

References 26 publications

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“…In the future, it will be necessary to research whether the results obtained in this paper can be observed in the real world. However, there are several limitations in this research, as there are in Ogawa and Susa [17]: 1) all residents are candidates and 2) all tax revenues are redistributed in a lump-sum manner. Therefore, in future research, more persuasive results may be obtained by endogenously analyzing who is the candidate and considering the preference for public goods.…”

Section: Discussionmentioning

confidence: 99%

“…Thus, the heterogeneity of the position of the median voter in each country causes the tax and capital allocation gaps. In addition, Ogawa and Susa [17] extend the results of Ihori and Yang [9] and build a model of asymmetric tax competition and political competition by incorporating asymmetries of production technology and of the position of the median voter among countries. In their study, the country with the higher (lower) production technology becomes a capital importing (exporting) country and has an incentive to set a higher (lower) tax rate to decrease (increase) their net capital price.…”

Section: Review Of the Related Literaturementioning

confidence: 94%

“…Terai [18] that a low tax rate is set in the country with high capital endowment may change. Therefore, we consider not only the asymmetry of capital endowment but also of income inequality among countries as in Persson and Tabellini [7], Gottschalk and Peters [16], and Ogawa and Susa [17]. As a result, under certain conditions, a higher tax rate is set in the country with higher capital endowment.…”

Section: Review Of the Related Literaturementioning

confidence: 99%

“…In Section 3, we derive the equilibria of our model and show the main results in Section 4. Sec- 2 Nishimura and Terai [18], as well as Ogawa and Susa [17], also examine strategic delegation, considering the asymmetry of production technology within each country. Further, they, as well as Bucovetsky [5] and Wilson [6], examine the asymmetry of population size.…”

Section: Review Of the Related Literaturementioning

confidence: 99%

“…As mentioned above, the government in each country 3 In Ogawa and Susa [17], the case where 1 iM θ ≥ is also analyzed, but the main result is discussed…”

Section: The Modelmentioning

confidence: 99%

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Tax Competition and Strategic Delegation with Interregional Asymmetries in Capital Endowment and Income Inequality

Watanabe¹

2019

TEL

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This study examines a two-country tax competition model, in which the capital endowment and income inequality are asymmetric in each country. Hwang and Cheo [1] and Peralta and van Ypersele [2] show that when countries differ in capital endowments, the country with the higher capital endowment sets a lower capital tax rate. However, their studies assume that all inhabitants are homogeneous. We extend the models of the two aforementioned studies and conduct an analysis taking into account the asymmetry in income inequality within countries. The tax rate is set by the policy maker elected by majority voting in each country's election. We find that a higher tax rate may be set in the country with higher capital endowment under certain conditions. Further, if the income inequality is sufficiently large, the median voters in each country unambiguously delegate the right to decide the tax rate to residents who prefer a higher tax rate than their own, regardless of the capital endowments of the two countries.Additionally, globalization affects the social situation around the world. In particular, the widening of income inequality and the poverty of developed countries is a serious problem. OECD [3] shows that the share of the richest 1% in all pre-tax income has more than doubled since 1980, reaching almost 20% in 2012. This trend has also been observed in other developed countries. These international (in developing vs. developed countries) and intra-national (income inequality) asymmetries may influence the policies implemented by the politicians. In developed countries with large tax base, politicians who decide lower tax rates may be elected in order to prevent the outflow of the tax base. On the other hand, in countries with large income inequality, politicians who decide higher tax rates may be elected as many of the population prefer more income redistribution and public services. Baldwin and Krugman [4] show that the average corporate tax rate (total corporate tax revenue divided by GDP) has increased between the 1980s and 2000 in European countries. We may be able to explain the cause of this trend as the widening of income inequality. Therefore, in this study, we conduct an analysis taking into account these two asymmetries, and clarify how each asymmetry affects the tax rate of each country. Recent trends suggest that tax competition research considering these asymmetries has important implications for theoretical and empirical analysis.

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Section: Discussionmentioning

confidence: 99%

Section: Review Of the Related Literaturementioning

confidence: 94%

Section: Review Of the Related Literaturementioning

confidence: 99%

Section: Review Of the Related Literaturementioning

confidence: 99%

“…As mentioned above, the government in each country 3 In Ogawa and Susa [17], the case where 1 iM θ ≥ is also analyzed, but the main result is discussed…”

Section: The Modelmentioning

confidence: 99%

See 3 more Smart Citations

Tax Competition and Strategic Delegation with Interregional Asymmetries in Capital Endowment and Income Inequality

Watanabe¹

2019

TEL

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Endogenizing government’s objectives in tax competition with capital ownership

Kawachi

Ogawa

Susa

2018

Int Tax Public Finance

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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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Electoral outcomes and local public goods provision with ex post interregional transfer

Akai

Watanabe

2022

Int Tax Public Finance

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Strategic delegation in asymmetric tax competition

Cited by 14 publications

References 26 publications

Tax Competition and Strategic Delegation with Interregional Asymmetries in Capital Endowment and Income Inequality

Tax Competition and Strategic Delegation with Interregional Asymmetries in Capital Endowment and Income Inequality

Endogenizing government’s objectives in tax competition with capital ownership

Electoral outcomes and local public goods provision with ex post interregional transfer

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