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International Tax and Public Finance

, Volume 11, Issue 6, pp 763–772 | Cite as

Competition in Unit vs. Ad Valorem Taxes

  • Ben Lockwood
Article

Abstract

This paper shows that in a standard model of tax competition, the Nash equilibrium in capital taxes depends on whether these taxes are unit (as assumed in the literature) or ad valorem (as in reality). In a symmetric version of the model, general results are established: taxes and public good provision are both higher, and residents in all countries are better off, when countries compete in unit taxes, as opposed to ad valorem taxes. However, the difference in equilibrium outcomes is negligible when the number of countries is large.

tax competition unit taxes ad valorem taxes 

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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Ben Lockwood
    • 1
  1. 1.Department of EconomicsUniversity of WarwickCoventryUK

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