| Abstract |
In this study, we extend the standard approach of horizontal tax competition by endogenizing the policy objectives that governments pursue. Following the literature on strategic delegation games, we consider a pre-play stage, where jurisdictions commit themselves to act as Leviathan or as benevolent agents. We show that the symmetric sub-game perfect equilibria correspond to three cases of tax competition among the Leviathan governments, moderate Leviathans, and benevolent governments, depending on the form of capital ownership. Further analysis reveals that asymmetric tax competition generates competition between the benevolent government and the (moderate) Leviathan government. The results provide grounds for benevolent or Leviathan objective of the government made in literature and explain why some governments behave as Leviathans, while others as benevolent agents in international tax competition environment. |