Keisuke Kawachi, Hikaru Ogawa
Further Analysis on Public-Good Provision in a Repeated-Game Setting
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In a model of privately provided public goods within a repeated-game setting, Pecorino (1999) shows that it is not only possible to maintain cooperation, but it is »easy« in a large economy. Models of privately provided public goods are closely related to interregional tax competition models with spillovers in public-good provision. This paper reexamines the argument of Pecorino in an infinitely repeated interaction model of interregional tax competition. The results show that in a large economy, while the trigger strategy supports the efficient tax rate if there exists substantial spillover of public goods, it fails to do so if there are few benefit spillovers.