Nishimura, Y. and Terai, K. (2016) The Direction of Strategic Delegation and Voter Welfare in Asymmetric Tax Competition Models. Discussion Papers in Economics and Business, Graduate School of Economics and Osaka School of International Public Policy, Osaka University, Osaka, 16-27.

has been cited by the following article:

• TITLE: Tax Competition and Strategic Delegation with Interregional Asymmetries in Capital Endowment and Income Inequality

  AUTHORS: Takahiro Watanabe

  KEYWORDS: Tax Competition, Strategic Delegation, Asymmetries in Capital Endowment and Income Inequality

  JOURNAL NAME: Theoretical Economics Letters, Vol.9 No.5, June 17, 2019

  ABSTRACT: This study examines a two-country tax competition model, in which the capital endowment and income inequality are asymmetric in each country. Hwang and Cheo [1] and Peralta and van Ypersele [2] show that when countries differ in capital endowments, the country with the higher capital endowment sets a lower capital tax rate. However, their studies assume that all inhabitants are homogeneous. We extend the models of the two aforementioned studies and conduct an analysis taking into account the asymmetry in income inequality within countries. The tax rate is set by the policy maker elected by majority voting in each country’s election. We find that a higher tax rate may be set in the country with higher capital endowment under certain conditions. Further, if the income inequality is sufficiently large, the median voters in each country unambiguously delegate the right to decide the tax rate to residents who prefer a higher tax rate than their own, regardless of the capital endowments of the two countries.