Politicians are disciplined through the electoral system. But this is often not enough to eliminate political rents. Economists suggest that competition across governments may also help. But intergovernmental competition can take two forms, through tax competition (exit) or yardstick competition...

An important puzzle in corporate taxation is that effective tax rates have fallen significantly while tax revenue has simultaneously risen in most countries. Moreover, the gross profitability of firms seems to be lower in high-tax countries, even though standard models of international...

We introduce tax competition for mobile labor into an optimal-taxation model with two skill levels. We analyze a symmetric subgame-perfect Nash equilibrium of the game between two governments and two taxpayer populations. Tax competition reduces the distortion from the informational asymmetry...