Wooders, Myrna Holtz and Zissimos, Ben, 1970- (2003) Hotelling tax competition. Working Paper. University of Warwick, Department of Economics, Coventry.

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Abstract

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
Date:	March 2003
Number:	No.668
Number of Pages:	56
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Description:	Preliminary draft: June 2002, this draft March 2003
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
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URI:	http://wrap.warwick.ac.uk/id/eprint/1521

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