Majority voting and endogenous timing in tax competition

Abstract

We model a timing game in tax competition where the initial capital is unevenly endowed within the country and the tax policies are determined under a majority voting regime. The model is characterized by a novel feature: The decisive voter imports capital at the individual level, while the country exports it at the national level. The paper finds that governments endogenously choose to play a sequential-move game, which is unlikely to associate with full capital ownership in the tax competition literature.