Federal tax autonomy and the limits of cooperation

Kessing, Sebastian G.; Konrad, Kai A. and Kotsogiannis, Christos (2005): Federal tax autonomy and the limits of cooperation. WZB Discussion Paper, SP II 2005-18

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.

• Item Type: Paper
• Keywords: Tacit collusion; foreign direct Investment; hold-up Problem; federalism; vertical tax externality; tax competition
• Faculties: Economics > Chairs > MPI for Tax Law and Public Finance
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: H11, H71, H73, H77
• Place of Publication: Berlin
• Language: English