Abstract:
A model of tax competition of jurisdictions is studied which takes into account taxpayers' imperfect competition on each jurisdiction's market. It is shown that sharpening of taxpayers' competition alleviates the authorities' one and allows them to raise tax rates. This result diverges from the classical “race to the bottom” equilibrium.
Keywords:taxation, tax competition, race to the bottom, multi-level competition, hierarchical system, extensive form game, subgame-perfect equilibrium.
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