Capital-Control Reaction Functions

Foreign tax --

Home tax --

World rate --

Foreign CA --

Welfare --

Horizontal axis: home outflow tax, τʰ. Vertical axis: foreign inflow tax, τᶠ.

Rᶠ(τʰ) Rʰ(τᶠ) Nash Trial pair

Model Parameters

Foreign Q₁ᶠ 0.50 Foreign Q₂ᶠ 1.00 Home Q₁ʰ 1.00 Home Q₂ʰ 1.00

Automatically recompute after parameter changes

Move the trial pair to see whether each country wants to raise or lower its tax. The Nash point moves when the model parameters change.

Foreign τᶠ 0.18 Home τʰ 0.30

Domestic returns: iᶠ = i* + τᶠ and iʰ = i* − τʰ.

Market clearing pins down i* from Kᶠ(i*,τᶠ) + Kʰ(i*,τʰ) = Q₁ᶠ + Q₁ʰ.

Best responses maximize log C₁ʲ + log C₂ʲ taking the other country’s tax as fixed.

Point	Policy	τᶠ	τʰ	i*	Foreign CA	Welfare