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Enhanced Coorporation in an asymmetric model of Tax Competition

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  • Hendrik Vrijburg

    ()
    (Erasmus University Rotterdam)

  • Ruud A. de Mooij

    ()
    (Erasmus University Rotterdam, CPB, Tinbergen Institute, Oxford University Centre for Business Taxation, CESifo)

Abstract

This paper analyzes enhanced cooperation agreements in corporate taxation in a three country tax competition model where countries differ in size. We characterize equilibrium tax rates and the optimal tax responses due to the formation of an enhanced cooperation agreement. Conditions for strategic complementarity or strategic substitutability of tax rates are crucial for the welfare effects of enhanced cooperation. Simulations show that enhanced cooperation is unlikely to be feasible for small countries. When enhanced cooperation is feasible, it may hamper global harmonization. Only when countries are of similar size is global harmonization a feasible outcome.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1002.

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Date of creation: 2010
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Handle: RePEc:btx:wpaper:1002

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Keywords: Tax coordination; Asymmetry; Enhanced Cooperation Agreements; Strategic Tax Response;

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References

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  1. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2003. "International Unions," Harvard Institute of Economic Research Working Papers 2001, Harvard - Institute of Economic Research.
  2. Bordignon, Massimo & Brusco, Sandro, 2006. "On enhanced cooperation," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2063-2090, November.
  3. Burbidge, John B. & James A. DePater & Gordon M. Meyers & Abhijit Sengupta, 1997. "A Coalition-Formation Approach to Equilibrium Federations and Trading Blocs," American Economic Review, American Economic Association, vol. 87(5), pages 940-56, December.
  4. Leon Bettendorf & Albert van der Horst & Ruud A. de Mooij & Hendrik Vrijburg, 2010. "Corporate tax consolidation and enhanced coorporation in the European Union," Working Papers 1001, Oxford University Centre for Business Taxation.
  5. Ben Lockwood, 2004. "Competition in Unit vs. Ad Valorem Taxes," International Tax and Public Finance, Springer, vol. 11(6), pages 763-772, November.
  6. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  7. Peter Birch Sørensen, 2000. "The case for international tax co-ordination reconsidered," Economic Policy, CEPR & CES & MSH, vol. 15(31), pages 429-472, October.
  8. Konrad, K.A. & Schjelderup, G., 1998. "Fortress Building in Global Tax Competition," Papers 17/98, Norwegian School of Economics and Business Administration-.
  9. Paul Beaudry & Pierre Cahuc & Hubert Kempf, 1999. "Is it Harmful to Allow partial Cooperation ?," Working Papers 99-39, Centre de Recherche en Economie et Statistique.
  10. Paola Manzini & Marco Mariotti, 1998. "A Tragedy Of The Clubs: Excess Entry in Exclusive Coalitions," Game Theory and Information 9808001, EconWPA.
  11. Bayindir-Upmann, Thorsten & Ziad, Abderrahmanne, 2005. "Existence of equilibria in a basic tax-competition model," Regional Science and Urban Economics, Elsevier, vol. 35(1), pages 1-22, January.
  12. Jens Brøchner & Jesper Jensen & Patrik Svensson & Peter Birch Sørensen, 2006. "The Dilemmas of Tax Coordination in the Enlarged European Union," CESifo Working Paper Series 1859, CESifo Group Munich.
  13. Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1533-1554, August.
  14. Peter Sørensen, 2004. "Company Tax Reform in the European Union," International Tax and Public Finance, Springer, vol. 11(1), pages 91-115, January.
  15. Jens Brøchner & Jesper Jensen & Patrik Svensson & Peter Birch Sørensen, 2006. "The Dilemmas of Tax Coordination in the Enlarged European Union," Working Papers 2006-11, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
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Cited by:
  1. Ruud A. de Mooij & Hendrik Vrijburg, 2012. "Tax Rates as Strategic Substitutes," Tinbergen Institute Discussion Papers 12-104/VI, Tinbergen Institute.
  2. Thomas Eichner & Rüdiger Pethig, 2013. "Self-enforcing capital tax coordination," Volkswirtschaftliche Diskussionsbeiträge 160-13, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  3. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.

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