Discussion Paper
No. 2014-19 |
April 29, 2014
Size Effect, Neighbour Effect and Peripheral Effect in Cross-Border Tax Games
(Published in Distance and Border Effects in Economics)
Abstract
This paper analyses a game theoretic model of tax competition in a system where tax authorities are revenue optimisers and countries are differentiated by size. The model accommodates more than two countries. In equilibrium, larger countries set higher tax rates non-cooperatively. By applying the Hotelling linear model, this paper gives examples where the size effect, neighbourhood effect, and peripheral effect coexist and push up the tax rate in equilibrium.
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