Is Race to the bottom is modeled as Prisoner's dilemma?

Sokolovskyi, Dmytro (2020): Is Race to the bottom is modeled as Prisoner's dilemma?

Abstract

The subject of this study is the modeling of Race to the bottom to verify, is really Race to the bottom is a kind of Prisoner’s dilemma. The importance of this issue is explained by the following: if Race to the bottom is a kind of Prisoner’s dilemma, achieving equilibrium tax competition two or more economies leads to deterioration of their economic results As a result, governments have to weaken social, environmental, labor standards and norms. At the same time, many statistical studies of real economies do not discover the above consequence of the tax competition, so it is concluded that there is no Race to the bottom. On the other hand, if Race to the bottom is not a kind of PD then that there is no deterioration in standards during the tax competition does not mean that there is no Race to the bottom. Using a game-theoretic model we consider 3 objective functions for government behavior: the investment volume, the budget revenue, and their combination. For each function, there were calculated conditions under which Race to the bottom is a kind of Prisoner’s dilemma. Introduced a concept of tax-investment equilibrium, as a situation in which all economies are equal for the investor. For the tax-investment equilibrium, there were calculated sufficient conditions under which Race to the bottom is a kind of Prisoner’s dilemma.

• Item Type: MPRA Paper
• Language: English
• Keywords: Race to the bottom; Prisoner’s dilemma; tax competition; government behavior; corporate tax rate; game theory; tax-investment equilibrium
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General

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