Partial Harmonization of Corporate Taxes in an Asymmetric Repeated Game Setting

37 Pages Posted: 15 Nov 2010

See all articles by Jun-ichi Itaya

Jun-ichi Itaya

Hokkaido University - Division of Modern Economics and Management

Makoto Okamura

Hiroshima University - Economics

Chikara Yamaguchi

Hokkaido University - Graduate School of Economics & Business Administration

Date Written: November 15, 2010

Abstract

This paper investigates the conditions under which partial harmonization for capital taxation is sustained in a repeated interactions model of tax competition when there are three heterogenous countries with respect to their capital endowments. We show that regardless of the structure of the coalition (i.e., any group of countries), whether partial tax harmonization is sustainable or not crucially depends on the capital endowment of the median country relative to those of the large and small countries. The most noteworthy finding is that the closer the capital endowment of the median country to the average capital endowment of the large and small countries, the less likely is the tax harmonization including the median country to prevail and the more likely is the partial tax harmonization excluding the median country to prevail.

Keywords: tax coordination, asymmetric countries, repeated game, tax competition

JEL Classification: H73, F59, F21

Suggested Citation

Itaya, Jun-ichi and Okamura, Makoto and Yamaguchi, Chikara, Partial Harmonization of Corporate Taxes in an Asymmetric Repeated Game Setting (November 15, 2010). CESifo Working Paper Series No. 3240. Available at SSRN: https://ssrn.com/abstract=1709274

Jun-ichi Itaya (Contact Author)

Hokkaido University - Division of Modern Economics and Management ( email )

Sapporo 060-0809
Japan

Makoto Okamura

Hiroshima University - Economics ( email )

1-2-1 Kagamiyama
Higashi-Hiroshima
Japan

Chikara Yamaguchi

Hokkaido University - Graduate School of Economics & Business Administration

Kita-ku Kita 9 Nishi 7
Sapporo, Hokkaido, 060
Japan

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