Size Effect, Neighbour Effect and Peripheral Effect in Cross-Border Tax Games

摘要

This paper analyses a game theoretic model of taxation competition in a system where tax authorities are revenue optimisers and sovereign countries are differentiated in country sizes. Model setting accommodates more than two countries. Such an economy is characterised in an equilibrium where the large countries set higher tax rates in non-cooperative context. The sizes of the countries in the neighbourhoods show a positive relation with equilibrium tax rates. By applying the Hotelling linear model, this paper gives examples that size effect, neighbourhood effect and peripheral effect coexist and push up the tax rate in equilibrium.