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Globalization, Asymmetric Tax Competition, and Fiscal Equalization

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  • CARL GAIGNÉ
  • STÉPHANE RIOU

Abstract

Trade integration and the increasing mobility of firms have raised the need for international coordination in corporate tax. In this paper, we study the ability of fiscal equalization to avoid the misallocation of capital across asymmetric countries arising from tax competition. Such a reform respects the principle according to which the tax decision is entirely left up to the nation and links nations engaged in strategic tax policy by transfers. We use a model of trade and location where firms produce under imperfect competition. Our analysis suggests that falling trade costs increase the distortion created by tax competition in the international allocation of production. However, we show that fiscal equalization based on differences in tax revenues or tax base can implement a more efficient tax wedge and spatial allocation of the tax base. Copyright 2007 Blackwell Publishing, Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 9 (2007)
Issue (Month): 5 (October)
Pages: 901-925

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Handle: RePEc:bla:jpbect:v:9:y:2007:i:5:p:901-925

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Citations

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Cited by:
  1. Nelly Exbrayat, 2008. "The Impact of Trade Integration and Agglomeration Economies on Tax Interactions : Evidence from OECD Countries," Post-Print hal-00270067, HAL.
  2. Exbrayat, Nelly & Geys, Benny, 2012. "Trade integration and business tax differentials: Evidence from OECD countries," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-110, Social Science Research Center Berlin (WZB).
  3. Nelly Exbrayat & Benny Geys, 2014. "Trade integration and corporate income tax differentials," International Tax and Public Finance, Springer, vol. 21(2), pages 298-323, April.
  4. Nelly Exbrayat & Thierry Madiès & Stéphane Riou, 2010. "International tax competition: do public good spillovers matter?," International Tax and Public Finance, Springer, vol. 17(5), pages 479-500, October.
  5. Carl Gaigné & Ian Wooton, 2010. "The gains from preferential tax regimes reconsidered," Working Papers SMART - LERECO 10-06, INRA UMR SMART.
  6. Nelly Exbrayat & Carl Gaigné & Stéphane Riou, 2010. "How labor market rigidities shape business taxation in a global economy?," Post-Print halshs-00537021, HAL.
  7. Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials : Theory and Evidence from OECD Countries," Working Papers 1123, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  8. Damiaan Persyn, 2009. "Union wage demands with footloose firms," Vives discussion paper series 3, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, Vives.

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