Abstract
This paper reconciles two opposite results in the tax competition literature. On one side Kempf and Rota-Graziosi (J.Pub. Econ 94:768-776, 2010) and Hindriks and Nishimura (J. Pub Econ 121:66-68, 2015) have shown that the two Stackelberg outcomes prevail as the subgame perfect equilibria when capital is entirely owned by non-residents. On the other side Ogawa (Int. Tax Pub Fin 20:474-484, 2013) has shown that the simultaneous-move outcome prevails when capital is entirely owned by residents. We develop a model in which capital ownership can vary freely between these two polar cases. We show that there exists a unique degree of residential capital ownership such that the equilibrium switches from the Stackelberg to the simultaneous-move outcomes. The chance for the simultaneous-move outcome to prevail increases with the extent of asymmetry among regions.
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