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Journal of Business Economics

, Volume 88, Issue 7–8, pp 915–940 | Cite as

Self-enforcing capital tax coordination

  • Thomas Eichner
  • Rüdiger Pethig
Original Paper

Abstract

Capital tax competition is known to result in inefficiently low tax rates and an undersupply of public goods. The provision of public goods and with it the welfare of all countries can be enhanced via tax coordination. Based on the standard Zodrow-Mieszkowski-Wilson tax-competition model this paper analyzes the conditions under which tax coordination by a group of countries is self-enforcing. In our analytical framework, there always exists a rather small stable tax coalition. For some subset of the parameter space the grand coalition is stable, even if the total number of countries is large. If the stable coalition is small, it is not very effective in mitigating the inefficiency of the non-cooperative Nash equilibrium. The ineffectiveness is increasing in the total number of countries.

Keywords

Tax coordination Tax competition Coalition Self-enforcing 

JEL Classification

C72 H70 H73 

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of HagenHagenGermany
  2. 2.Department of EconomicsUniversity of SiegenSiegenGermany

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