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EU Regional Policy and Tax Competition

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Author Info
Johannes Becker () (Oxford University Centre for Business Taxation)
Clemens Fuest () (Oxford University Centre for Business Taxation)

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Abstract

The European Union 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 analyse 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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Publisher Info
Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0902.

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Date of creation: 2009
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Handle: RePEc:btx:wpaper:0902

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Related research
Keywords: European Union; Infrastructure; Regional Policy; Tax Competition;

Find related papers by JEL classification:
H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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References listed on IDEAS
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  1. Ronald B. Davies & Carsten Eckel, 2007. "Tax Competition for Heterogeneous Firms with Endogenous Entry:The Case of Heterogeneous Fixed Costs," The Institute for International Integration Studies Discussion Paper Series iiisdp213, IIIS. [Downloadable!]
    Other versions:
  2. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June. [Downloadable!] (restricted)
    Other versions:
  3. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December. [Downloadable!] (restricted)
  4. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January. [Downloadable!] (restricted)
    Other versions:
  5. Michele Boldrin & Fabio Canova, 2001. "Inequality and convergence in Europe's regions: reconsidering European regional policies," Economic Policy, CEPR, CES, MSH, vol. 16(32), pages 205-253, 04. [Downloadable!] (restricted)
  6. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2007. "Export-Platform Foreign Direct Investment," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 776-795, 06. [Downloadable!] (restricted)
    Other versions:
  7. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October. [Downloadable!] (restricted)
  8. Ulltveit-Moe, Karen Helene, 2007. "Regional policy design: An analysis of relocation, efficiency and equity," European Economic Review, Elsevier, vol. 51(6), pages 1443-1467, August. [Downloadable!] (restricted)
  9. Fuest, Clemens & Huber, Bernd, 2006. "Can regional policy in a federation improve economic efficiency?," Journal of Public Economics, Elsevier, vol. 90(3), pages 499-511, February. [Downloadable!] (restricted)
  10. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September. [Downloadable!] (restricted)
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  11. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December. [Downloadable!] (restricted)
  12. Fuest, Clemens, 2005. "Economic integration and tax policy with endogenous foreign firm ownership," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1823-1840, September. [Downloadable!] (restricted)
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