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Puce Grégoire Rota-Graziosi (CERDI, UCA et CNRS)

mardi 30 janvier 2018

The Supermodularity of the Tax Competition Game [PDF]

Abstract: Tax competition is often associated with the "race to the bottom:" a decrease in the tax rate of one jurisdiction (country, region or municipality) triggers similar reactions in neighboring jurisdictions. This race may be linked to two properties of the tax competition game: a positive tax spillover and the strategic complementarity of tax rates. Using tools from generalized concavity, more precisely r-concavity, and supermodular games, this paper offers a simple yet unifying perspective on the fundamental forces that shape tax competition. The main results characterize sufficient conditions on the marginal productivity of tax competing jurisdictions to predict a "race to the bottom." These conditions lead us to bind the curvature of the inverse demand for capital of each tax-competing jurisdiction. We deduce several results: at least one pure-strategy Nash equilibrium exists; tax coodination is Pareto improving, but neither communication, nor the coalition of a subgroup of countries does achieve neither tax coordination, nor tax cooperation; for a given stock of capital, any increase in the number of jurisdictions decreases tax rates and tax revenues and improves the net return of capital. Establishing similar sufficient conditions for the supermodularity of the tax competition game with welfare maximizers raises multiple issues. Besides the question of the nature of public spending, we discuss the role of capital by considering an elastic worldwide stock of capital, capital ownership, and the perturbing role of offshore centers.

Homepage: http://cerdi.org/gregoire-rota-graziosi/perso