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Implicit tax co-ordination under repeated policy interactions

Published online by Cambridge University Press:  17 August 2016

Marco Catenaro  and
Jean-Pierre Vidal
Marco Catenaro
Affiliation:
European Central Bank
Jean-Pierre Vidal
Affiliation:
European Central Bank
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Summary

In the context of a stylised game theoretical framework of capital tax competition, we show that when repeated policy interactions are associated to a systematic punishment of the deviating policymaker, a co-ordinated outcome can be the solution to the non co-operative tax game. This result suggests that explicit forms of policy co-ordination, such as a centralised tax authority, could in fact be largely unnecessary.

Résumé

Résumé

Dans le cadre d'un modèle de concurrence fiscale, nous montrons qu'une coordination implicite des taux de taxation peut résulter des interactions répétées entre les autorités fiscales, lorsque l'autorité qui déciderait de poursuivre une stratégie non coopérative pendant une période est systématiquement punie par la suite. Ce résultat suggère que des formes explicites de coordination, comme l'instauration d'une autorité fiscale centralisée, pourraient bien être inutiles.

Keywords

Coordination de politiquematières fiscales internationalesE61H87policy co-ordinationinternational fiscal issuesE61H87
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 72 , Issue 1 , 2006 , pp. 5 - 17
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2006 

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Footnotes

*

The authors are grateful to Bertrand Crettez, Luca Onorante, Pierre Pestieau, Ludger Schuknecht, Rolf Strauch, Emmanuelle Taugourdeau, Juergen von Hagen, an anonymous referee of the ECB Working Paper Series and three anonymous referees of this review for comments and constructive criticism. An earlier version of this paper was presented at the 5th Banca d'ltalia Workshop on Public Finance (Perugia, 3-5 April 2003). Comments from Vieri Ceriani, David Heald, Michael Keen, Ranjana Madhusudhan and other workshop participants are also gratefully acknowledged. The opinions expressed herein are those of the authors and do not necessarily reflect those of the European Central Bank. marco.catenaro@ecb.intjean-pierre.vidal@ecb.int

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