Discussion Papers 2016

CIRJE-F-1030

"Leadership in Tax Ccompetition with Fiscal Equalization Transfers"

Author Name

Haraguchi, Junichi and Hikaru Ogawa

Date

November 2016

Full Paper

PDF File

Remarks

Forthcoming in The B.E. Journal of Economic Analysis & Policy

Abstract

We propose a timing game of asymmetric tax competition with fiscal equalization scheme. The study finds that governments tend to play a sequential-move game as the scale of equalization transfer increases, which explains the emergence of tax leaders in tax competition. The presence of a tax leader is likely to exacerbate capital misallocation among countries, suggesting that equalization transfers aimed at narrowing the interregional fiscal gap might cause a problem of efficient capital allocation.

Keywords: tax competition, endogenous timing, leadership, equalization transfers