Hotelling Tax Competition

57 Pages Posted: 8 May 2003

See all articles by Myrna H. Wooders

Myrna H. Wooders

Vanderbilt University - College of Arts and Science - Department of Economics

Ben Zissimos

Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: April 2003

Abstract

This paper shows how competition among governments for mobile firms can bring about excessive differentiation in levels of taxation and public good provision. Hotelling's Principle of Minimum Differentiation is applied in the context of tax competition and shown to be invalid. Instead, when an equilibrium exists, differentiation of public good provision is maximized. Non-existence of equilibrium, which is possible, is a metaphor for intense tax competition. The paper also shows that, to some extent, perfect tax discrimination presents a solution to the existence problem created by Hotelling tax competition, but that the efficiency problem of Hotelling tax competition is exacerbated.

Keywords: Hotelling, Limit Tax, Perfect Tax Discrimination, Tax Competition

JEL Classification: H1, H25, H73, H87

Suggested Citation

Wooders, Myrna H. and Zissimos, Ben, Hotelling Tax Competition (April 2003). Available at SSRN: https://ssrn.com/abstract=404560 or http://dx.doi.org/10.2139/ssrn.404560

Myrna H. Wooders (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Ben Zissimos

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

HOME PAGE: http://www.vanderbilt.edu/econ/cv/ZissimosCV.pdf

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