Evolutionary Stability in Fiscal Competition

Arbeitspapier

In fiscal interaction, a policy is evolutionarily stable if, once adopted by all governments, jurisdictions that deviate from it fare worse than those that stick to it. Evolutionary stability is the appropriate solution concept for models of imitative learning (policy mimicking). We show that evolutionarily stable strategies implement identical allocations, regardless of whether jurisdictions use tax rates or expenditure levels as their strategy variable. This is in contrast to the observation that the allocations in the Nash equilibria of games played in tax rates or expenditure levels differ from one another. With evolutionary play, jurisdictions set taxes and expenditures competitively, i.e., they behave as if they were all negligibly small.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5791

Classification and Topics

• Classification: Wirtschaft ; Intergovernmental Relations; Federalism; Secession ; State and Local Budget and Expenditures ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
• Subject: tax and expenditure competition ; finite-player ESS ; policy equivalence

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Wagener, Andreas
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/130408
• Last update: 10.03.2025, 11:41 AM CET