Bigger Countries with Probably Lower Commodity Taxes

The article studies a spatial model of commodity tax competition between two countries that may differ in both population density and land mass, synthesiz-ing two earlier contributions where pure strategy equilibria always existed and where the ‘bigger ’ country (that with the larger population) set the higher tax. In our more general setting, pure strategy equilibria may not exist, but we can compute a mixed strategy equilibrium, which offers probabilistic alternatives to the empirically questionable ‘big country-high tax ’ correlation; the bigger country may have a lower ‘expected ’ tax rate and may be ‘more likely ’ to be the low tax country