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Nash equilibrium in tax and public investment competition
Published in Elsevier
2019
Volume: 62
   
Pages: 106 - 120
Abstract
We analyze Nash equilibrium in fiscal competition with tax and public investment between symmetric regions. We show that given the opposite strategic nature of tax (strategic complement) and public investment (strategic substitute), there is possibility of multiple equilibria. We find that if strategic substitute effect dominates strategic complement effect, then both regions have first mover advantage in a timing game and simultaneous move Nash equilibrium (early, early) emerges; otherwise sequential move equilibria-(early, late) and (late, early) emerges. Also, sequential move Nash equilibria are Pareto improving than simultaneous move outcome. Lastly, race-to-the-bottom in taxes is restricted in sequential move equilibria.
About the journal
JournalData powered by TypesetInternational Review of Economics & Finance
PublisherData powered by TypesetElsevier
ISSN1059-0560
Open AccessYes
Concepts (2)
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    Economics and econometrics
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    Finance