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Concurrence pour attirer un duopole : commerce international et concurrence fiscale .
Author(s) -
Ferrett Ben,
Wooton Ian
Publication year - 2010
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/j.1540-5982.2010.01594.x
Subject(s) - duopoly , economics , subsidy , competition (biology) , production (economics) , investment (military) , international economics , tax competition , economic surplus , microeconomics , international trade , monetary economics , market economy , welfare , cournot competition , ad valorem tax , tax reform , ecology , biology , politics , political science , law
We analyse the tax/subsidy competition between two potential host governments to attract the plants of firms in a duopolistic industry. While competition between identical countries for a monopolist's investment is known to result in subsidy inflation, two firms can be taxed in equilibrium with the host countries appropriating the entire social surplus generated within the industry, despite explicit non‐cooperation between governments. Trade costs mean that the firms prefer dispersed to co‐located production, creating these taxation opportunities for the host countries. We determine the country‐size asymmetry that changes the nature of the equilibrium, inducing concentration of production in the larger country.