Reference : Asymmetric Competition among Nation States: A Differential Game Approach
E-prints/Working papers : Already available on another site
Business & economic sciences : International economics
http://hdl.handle.net/10993/2985
Asymmetric Competition among Nation States: A Differential Game Approach
English
Han, Yutao mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Pieretti, Patrice mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Zanaj, Skerdilajda mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Zou, Benteng mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
2012
Bielefeld University, Center for Mathematical Economics
No
[en] Tax/Infrastructure competition; Open-loop/Markovian strategies; Differential games
[en] This paper analyzes the impact of foreign investments on a small country's economy in the context of international competition. To that end, we model tax and infrastructure competition within a differential game framework between two unequally sized countries. The model accounts for the widely recognized characteristic that small states are more flexible in their political decision making than larger countries. However, we also acknowledge that small size is associated with limited institutional capacity in the provision of public goods. The model shows that the long-term outcome of international competition crucially depends on the degree of capital mobility. In particular, we show that flexibility mitigates against - but does not eliminate - the likelihood of collapse in a small economy. Finally, we note that the beneficial effect of flexibility in a small state increases with its inefficiency in providing public infrastructure and with the degree of international openness.
http://hdl.handle.net/10993/2985
http://ideas.repec.org/p/bie/wpaper/460.html
Working Papers
http://ideas.repec.org/p/bie/wpaper/460.html

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