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Title:Tax competition, relative performance and policy imitation PDF Logo
Authors:Wagener, Andreas
Issue Date:2009
Series/Report no.:CESifo working paper 2723
Abstract:Rather than about absolute payoffs, governments in fiscal competition often seem to care about their performance relative to other governments. Moreover, they often appear to mimic policies observed elsewhere. We study such behaviour in a tax competition game with mobile capital à la Zodrow-Mieszkowski. Both with relative payoff concerns and for imitative policies, evolutionary stability is the appropriate solution concept. It renders tax competition more aggressive than with best-reply policies (Nash equilibrium). Whatever the number of jurisdictions involved, an evolutionary stable tax policy coincides with the competitive outcome of a tax competition game played among infinitely many governments. Tax competition among boundedly rational governments, thus, involves drastic efficiency losses.
Subjects:fiscal competition
relative performance
tax mimicking
evolutionary stability
JEL:H77
H75
C73
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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