Lobbying and Tax Competition in an Oligopolistic Industry: A Reverse Home Market Effect

37 Pages Posted: 9 Apr 2015 Last revised: 22 Jul 2018

Date Written: December 1, 2016

Abstract

This paper studies international tax competition for an oligopolistic industry with many firms. Each national government sets its tax rate strategically to maximize the weighted sum of residents’ welfare and political contributions by owners of firms as special interest groups. It is shown that, if the governments heavily care about contributions and trade costs are low, the small country attracts a more than proportionate share of firms by setting a lower tax rate. The well-known home market effect, meaning that a country with a larger domestic market attracts a more-than-proportionate share of firms, may be reversed as a result of tax competition played by politically-interested governments.

Keywords: Tax competition, Market size, Reverse home-market effect, Economic geography, Lobbying

JEL Classification: F15, F22, H20, H30

Suggested Citation

Kato, Hayato, Lobbying and Tax Competition in an Oligopolistic Industry: A Reverse Home Market Effect (December 1, 2016). Available at SSRN: https://ssrn.com/abstract=2591758 or http://dx.doi.org/10.2139/ssrn.2591758

Hayato Kato (Contact Author)

Osaka University ( email )

1-7 Machikaneyama
Toyonaka, Osaka 5600043
Japan

HOME PAGE: http://https://hayatokato.weebly.com/

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