Hotelling tax competition
Wooders, Myrna Holtz and Zissimos, Ben (2003) Hotelling tax competition. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.668).
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This paper shows how competition among governments for mobile firms can bring about excessive differentiation in levels of taxation and public good provision. Hotelling’s Principle of Minimum Differentiation is applied in the context of tax competition and shown to be invalid. Instead, when an equilibrium exists, differentiation of public good provision is maximized. Non-existence of equilibrium, which can occur, is a metaphor for intense tax competition. The paper also shows that, to some extent, perfect tax discrimination presents a solution to the existence problem created by Hotelling tax competition, but that the efficiency problem of Hotelling tax competition is exacerbated.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Taxation, Competition, Profit, Differentiable functions, Public goods|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||March 2003|
|Number of Pages:||56|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Preliminary draft: June 2002, this draft March 2003
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
 Baldwin, R. and P. Krugman (2000); “Agglomeration, Integration and Tax Harmonization,” CEPR Discussion Paper, November 2000 no. 2630.
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