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

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