Federal Tax Autonomy and the Limits of Cooperation

WZB-Markets and Political Economy Working Paper No. SPll 2005-18

23 Pages Posted: 8 Dec 2005

See all articles by Sebastian G. Kessing

Sebastian G. Kessing

Wissenschaftszentrum Berlin fuer Sozialforschung (WZB) - Market Processes and Governance; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Christos Kotsogiannis

University of Exeter

Date Written: October 2005

Abstract

We consider the hold-up problem between a foreign direct investor and the government(s) in a host country with weak governmental structure and lack of power to commit. Using Nash threats, we show that an efficient investment level can be sustained for a sufficiently high discount factor and ask whether a federal structure makes collusion more or less sustainable. We show that collusion between the government and the investor is easier to sustain if the host country is more centralized or if the government layers can commit to fixed sharing rules.

Keywords: Tacit collusion, foreign direct investment, hold-up problem, federalism, vertical tax externality, tax competition

JEL Classification: H11, H71, H73, H77

Suggested Citation

Kessing, Sebastian G. and Konrad, Kai A. and Kotsogiannis, Christos, Federal Tax Autonomy and the Limits of Cooperation (October 2005). WZB-Markets and Political Economy Working Paper No. SPll 2005-18. Available at SSRN: https://ssrn.com/abstract=868443 or http://dx.doi.org/10.2139/ssrn.868443

Sebastian G. Kessing (Contact Author)

Wissenschaftszentrum Berlin fuer Sozialforschung (WZB) - Market Processes and Governance ( email )

Reichpietschufer 50
D-10785 Berlin
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, 81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

Christos Kotsogiannis

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

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