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Capital Tax Competition and Cooperation with Endogenous Capital Formation
Author(s) -
Yakita Akira
Publication year - 2014
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12118
Subject(s) - economics , microeconomics , capital (architecture) , monetary economics , tax competition , consumption tax , marginal cost of capital schedule , nash equilibrium , double taxation , ad valorem tax , public economics , financial capital , capital formation , profit (economics) , archaeology , history
Incorporating consumption–savings choices under a general concave utility function and hence an endogenous capital supply into a model of capital tax competition, we re‐investigate Nash equilibrium and compare it with the optimum under cooperative tax policy. In contrast to the case of fixed capital supply, it is shown that if savings sufficiently increase with the interest rate, a Nash equilibrium may be more efficient than a cooperative tax policy. Therefore, the distortionary effects of capital supply are important to issues of tax policy coordination.