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EU regional policy and tax competition

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  • Becker, Johannes
  • Fuest, Clemens

Abstract

The European Union (EU) provides coordination and financing of trans-European transport infrastructures, i.e. roads and railways, which link the EU member states and reduce the cost of transport and mobility. This raises the question of whether EU involvement in this area is justified by inefficiencies of national infrastructure policies. Moreover, an often expressed concern is that policies enhancing mobility may boost tax competition. We analyze these questions using a model where countries compete for the location of profitable firms. We show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition. In contrast, with regard to union-periphery infrastructure, the union has an interest in a coordinated reduction of investment expenditures. Here, the effects on tax competition are ambiguous. Our results provide a rationale for EU-level regional policy that supports the development of intra-union infrastructure.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 54 (2010)
Issue (Month): 1 (January)
Pages: 150-161

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Handle: RePEc:eee:eecrev:v:54:y:2010:i:1:p:150-161

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Web page: http://www.elsevier.com/locate/eer

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Keywords: European Union Infrastructure Regional policy Tax competition;

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References

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Citations

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Cited by:
  1. Johannes Becker & Clemens Fuest, 2009. "EU Regional Policy and Tax Competition," Working Papers, Oxford University Centre for Business Taxation 0902, Oxford University Centre for Business Taxation.
  2. Julia Darby & Ben Ferrett & Ian Wooton, 2013. "FDI, trade costs and regional asymmetries," Working Papers, University of Strathclyde Business School, Department of Economics 1327, University of Strathclyde Business School, Department of Economics.
  3. Alexander Haupt & Tim Krieger, 2009. "The role of mobility in tax and subsidy competition," Working Papers 2009/37, Institut d'Economia de Barcelona (IEB).
  4. Kyoko Hirose & Kazuhiro Yamamoto, 2013. "Asymmetric international transport costs and tax competition: the influence of a third country," Discussion Papers, Kyushu Sangyo University, Faculty of Economics 59, Kyushu Sangyo University, Faculty of Economics.
  5. Alexei Alexandrov & Özlem Bedre-Defolie, 2011. "Sales tax competition and a multinational with a decreasing marginal cost," ESMT Research Working Papers ESMT-11-01, ESMT European School of Management and Technology.
  6. Johannes Becker & Andrea Schneider, 2014. "Bidding for Firms with Unknown Characteristics," CESifo Working Paper Series 4806, CESifo Group Munich.
  7. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers, Max Planck Institute for Tax Law and Public Finance international_tax_competi, Max Planck Institute for Tax Law and Public Finance.

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