Conservative lawmakers have long touted the idea that cutting corporate tax rates spurs economic growth. Proponents point to many mechanisms; a central one is that lower tax rates attract investment that might otherwise go to other countries. President Trump’s chief economic adviser, Gary Cohn, recently highlighted this goal when discussing the Republican plan to reduce the corporate tax rate from 35 percent to 20 percent, below the world average of 22.5 percent.

This idea seems like a simple way to attract investment: If the tax rate is lower in the United States, corporations might prefer to invest here. But it turns out the situation is not so straightforward. By using game theory — the science of strategic interaction — we can see that America may be contributing to a problem that ultimately harms us economically. This is because the United States is not the only country seeking to attract investment by lowering corporate taxes. This rivalry among countries is known as tax competition.

Tax competition occurs when nations compete to attract investment by imposing ever lower tax burdens on corporations. Mechanisms such as lower corporate income taxes, favorable tax-base definitions and tax holidays encourage multinational corporations to repatriate assets held overseas. This competition is an example of what game theorists call a collective action problem. These problems no doubt are familiar to many of us: In joint projects at work, every member of a team stands to benefit if the project is completed on time. But if individuals think they can avoid their share of the work, they will, leaving others to pick up the slack. Without some mechanism like good management to enforce shared norms, everyone on the team will shirk their responsibilities and the team will fail.