Capacity Choice in the Mixed duopoly with Product Differentiation

This note shows that when products are complements in the mixed duopoly market, both public and private firms choose excess capacity. This contrasts with substitute case, where public firm strategically chooses under-capacity while private firm keeps holding excess capacity.capacity choice

Endogenous Choice on Tax Instruments in a Tax Competition Model: Unit Tax versus Ad Valorem Tax

This paper analyzes an endogenous choice problem with regard to tax instruments in a capital tax competition model. Considering a symmetric and two-region model of tax competition, where each region is allowed to choose either unit or ad valorem tax, we show that selecting unit tax as a policy instrument is the dominant strategy of governments. An interpretation of this result is clearly explained by the properties of the best response curves.Tax competition, Unit tax, Ad valorem tax

Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking

In this paper, we analyze a class of models in which there are interjurisdictional spillovers among heterogeneous jurisdictions, as illustrated for instance by CO2 emissions that affect the global environment. Each jurisdiction’s emissions depend upon the local stock of private capital. Capital is interjurisdictionally-mobile and may be taxed to help finance local public expenditures. We show that decentralized policymaking leads to efficient resource allocations in important cases, even in the complete absence of corrective interventions by higher-level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can still result in globally efficient allocation.

Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking

In this paper, we analyze a class of models in which there are interjurisdictional spillovers among heterogeneous jurisdictions, as illustrated for instance by CO2 emissions that affect the global environment. Each jurisdiction’s emissions depend upon the local stock of private capital. Capital is interjurisdictionally-mobile and may be taxed to help finance local public expenditures. We show that decentralized policymaking leads to efficient resource allocations in important cases, even in the complete absence of corrective interventions by higher-level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can still result in globally efficient allocation.

Who gains from capital market integration: Tax competition between unionized and non-unionized countries

The welfare effects of capital market integration are examined under a model of tax competition with two asymmetric countries. The asymmetry is expressed through the labor market: one country has a perfect labor market whereas the other country is unionized. Our results show that the welfare effects of capital market integration are different depending on whether governments play an active role in attracting capital: in the absence of active governments, the capital market integration benefits the country with a competitive labor market and harms the unionized country. If the governments are active and compete for mobile capital using tax/subsidy, the market integration benefits both countries. The governmentfs incentive to participate in a tax/subsidy game is also examined in the integrated capital market. We find that the unionized country always prefers to participate in the tax/subsidy game, but the non-unionized country avoids the game if it is a capital importer.Capital Market Integration, Capital Mobility, Tax Competition, Trade Unions, Welfare.

Endogenizing Leadership in Tax Competition: The Role of Capital Ownership

Abstract This paper extends the work of Kempf and Rota-Graziosi (Journal of Public Economics, 2010, 94, 768-776), which argues that the subgame perfect equilibria (SPEs) correspond to two Stackelberg outcomes under capital tax competition. The findings show that their result depends on the form of capital-ownership, that is, absentee ownership. By generalizing the form of capital-ownership, this paper shows that the simultaneous-move outcome prevails as an SPE if the capital is owned by residents in the countries, whereas the Kempf and RotaGraziosi argument holds if the capital is owned by absentee owners