Two-dimensional fiscal competition

This paper analyses commodity tax competition between two neighboringcountries whose governments are tax-revenue maximizers in atwo-dimensional market. The results suggest three conclusionsin a geographical sense. First, a small country sets a lowertax than does a big country, and per capita revenue of the smallcountry is larger than that of the big country. Second, thesetwo countries are subject to severer competitive pressure inthe case of a more curved national border. Finally, the impactof border curvature on tax and revenue differences are alwaysopposite in sign with the impact on tax and revenue ratios.