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International tax competition with endogenous sequencing

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  • Tomoya Ida
Abstract
This paper examines endogenous timing in an international tax competition model. Unlike existing studies, governments are assumed to decide not only tax rates but also whether they are set early or late. The Nash equilibrium provides four conclusions for alternative double tax allowances. First, tax deductions cause simultaneous tax competition, whereas tax credits yield sequential tax competition. Second, any double taxation relief would generate capital trade. Third, a credit system could maximize one country’s economic welfare but would lower another country’s economic welfare more than a deduction regime. Fourth, a home country’s government would choose credit regimes under a maximax rule, but select deduction methods under minimax and maximin rules, while all double tax allowances are indifferent to a host country. The findings resolve the question raised by Bond and Samuelson (Economic Journal 99:1099–1111, 1989 ) of why governments choose tax credits when tax deductions are clearly better. Namely, this paper shows that one country is better off but another is worse off with credits rather than deductions. Accordingly, we cannot clearly specify whether governments choose credit systems or deduction regimes. The possible double tax allowances employed by the governments depend on their own decision criterion. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Tomoya Ida, 2014. "International tax competition with endogenous sequencing," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(2), pages 228-247, April.
    • Handle: RePEc:kap:itaxpf:v:21:y:2014:i:2:p:228-247
    DOI: 10.1007/s10797-012-9264-6
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    References listed on IDEAS

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    Cited by:

    1. Hikaru Ogawa & Atsushi Yamagishi, 2016. "Ad Valorem Capital Tax Competition," CIRJE F-Series CIRJE-F-1030, CIRJE, Faculty of Economics, University of Tokyo.
    2. Hikaru Ogawa & Taiki Susa, 2017. "Majority voting and endogenous timing in tax competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(3), pages 397-415, June.
    3. repec:hok:dpaper:286 is not listed on IDEAS
    4. Jun‐ichi Itaya & Chikara Yamaguchi, 2023. "Endogenous leadership and sustainability of enhanced cooperation in a repeated interactions model of tax competition: Endogenous leadership in tax competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(2), pages 276-300, April.

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    More about this item

    Keywords

    International tax competition; Endogenous timing; Double tax allowance; First/second-mover advantage; Strategic substitutes/complements; Decision rules; H87; C72; H30; F21;
    All these keywords.

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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