Evolutionary Equilibria in Capital Tax Competition with Imitative Learning

Abstract

This paper presents an alternative model where each decision maker takes an economy-wide net return to capital parametrically even in tax competition among finite nonatomistic jurisdictions. To this end, we examine a long-run equilibrium of a tax competition game adopting an evolutionary game-theoretic approach. We find that a unique evolutionarily stable strategy coincides with the strategy consisting of a unique stochastically stable state in the imitative dynamics of tax competition. Moreover, in the evolutionary equilibria, we obtain the same result as in the “purely competitive” equilibrium even with finite nonatomistic jurisdictions.