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The political economy of capital market integration and tax competition

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  • Lai, Yu-Bong

Abstract

This paper investigates the effect of capital market integration (CMI) on capital taxes in a political economy framework in which policy is influenced by lobbying of interest groups. CMI increases the efficiency cost of the capital tax, which introduces incentives to reduce the tax rate, but also reduces lobbying by owners of capitalists, which introduces countering incentives to increase the tax rate. CMI can therefore result in a higher capital tax rate. When the market share of each country is small, CMI may increase government supply of public goods and enhance efficiency, which implies that, in the presence of policy endogeneity through lobbying, decentralized policymaking can be more efficient than centralized policymaking.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 26 (2010)
Issue (Month): 4 (December)
Pages: 475-487

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Handle: RePEc:eee:poleco:v:26:y:2010:i:4:p:475-487

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Web page: http://www.elsevier.com/locate/inca/505544

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Keywords: Capital mobility Fiscal federalism Globalization Interest groups Political economy Tax competition;

References

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Citations

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Cited by:
  1. Osterloh, Steffen & Heinemann, Friedrich, 2013. "The political economy of corporate tax harmonization — Why do European politicians (dis)like minimum tax rates?," European Journal of Political Economy, Elsevier, Elsevier, vol. 29(C), pages 18-37.
  2. Stephanie Meinhard & Niklas Potrafke, 2012. "The Globalization–Welfare State Nexus Reconsidered," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 271-287, 05.
  3. Christoph A. Schaltegger & Frank Somogyi & Jan-Egbert Sturm, 2009. "Tax Competition and Income Sorting: Evidence from the Zurich Metropolitan Area," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 09-240, KOF Swiss Economic Institute, ETH Zurich.
  4. Chu, Hsun, 2013. "Tax Enforcement Policy and the Provision of Public Goods with the Presence of Tax Havens," MPRA Paper 53021, University Library of Munich, Germany, revised Nov 2013.
  5. Menegaki, Angeliki N. & Ozturk, Ilhan, 2013. "Growth and energy nexus in Europe revisited: Evidence from a fixed effects political economy model," Energy Policy, Elsevier, Elsevier, vol. 61(C), pages 881-887.
  6. Yu-Bong Lai, 2014. "Asymmetric tax competition in the presence of lobbying," International Tax and Public Finance, Springer, Springer, vol. 21(1), pages 66-86, February.
  7. Osterloh, Steffen & Debus, Marc, 2012. "Partisan politics in corporate taxation," European Journal of Political Economy, Elsevier, Elsevier, vol. 28(2), pages 192-207.
  8. Burgoon, Brian & Demetriades, Panicos & Underhill, Geoffrey R.D., 2012. "Sources and legitimacy of financial liberalization," European Journal of Political Economy, Elsevier, Elsevier, vol. 28(2), pages 147-161.

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