The formation of an alliance in conflict situations is known to suffer from a collective action problem and from the potential of internal conflict. We show that budget constraints of an intermediate size can overcome this strong disadvantage and explain the formation of alliances.

If a small cost applies for learning the corporate tax rules in different countries, this can completely eliminate tax competition. This modified version of the Diamond paradox and can also explain the empirically observed tax cuts cum base broadening.

In a Stackelberg framework of capital income taxation it is shown that imposing a minimum tax rate that is lower than all countries' equilibrium tax rates in the unconstrained non-cooperative equilibrium may reduce equilibrium tax rates in all countries.