Work

Sensitivity versus size: Implications for tax competition

Year: 2025

Type: article

Abstract: The conventional wisdom is that a large jurisdiction sets a higher tax rate than a small jurisdiction. We show that this result arises due to simplifying assumptions that imply that tax‐base sensitivities are equal across jurisdictions. When more than two jurisdictions compete in commodity taxes, tax‐base sensitivities need not be equal across jurisdictions and a small jurisdiction can set a higher tax rate than a large jurisdiction. Our analysis extends to capital and profit taxes, and, more generally, to various types of multi‐player asymmetric competition.

Source: Theoretical Economics

DOI: 10.3982/te5338

Authors: David R. Agrawal, Adib Bagh, Mohammed Mardan

Institutions: University of California, Irvine, University of Kentucky, Norwegian School of Economics

Language: English

Topic: Local Government Finance and Decentralization

Subfield: Political Science and International Relations

Field: Social Sciences

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: diamond

OpenAlex ID: W4413079973

FWCI: 7.853

Cites: 54

Cited by: 2

Related to: 10