federal tax autonomy and the limits of cooperation：联邦税收自治与合作的局限性.pdfVIP

Federal tax autonomy and the limits of cooperation∗ † ‡ § Sebastian G. Kessing, Kai A. Konrad and Christos Kotsogiannis October 30, 2005 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 suffi- ciently 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. Key words: tacit collusion, foreign direct investment, hold-up prob- lem, federalism, vertical tax externality, tax competition JEL classification numbers: H11, H71, H73, H77 ∗Correspondence to: Sebastian Kessing, Social Science Research Centre (WZB), Re- ichpietschufer 50, D-10785 Berlin, Germany, e-mail: kessing@wz-berlin.de. †Department of Economics, Free University of Berlin and Social Science Research Cen- ter (WZB). ‡Social Science Research Center (WZB) and Department of Economics, Free University of Berlin. §Department of Economics, University of Exeter, School of Business and Economics, UK. 1 Introduction Foreign direct investment (FDI) is notoriously prone to risk. Once the in- vestment is made, a large share of it is sunk, and the expected returns from the investment may be diluted by changes in the host country’s policy. T