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Economic Integration and Redistributive Taxation: A Simple Model with Ambiguous Results

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Author Info
Andreas Haufler ()
Alexander Klemm ()
Guttorm Schjelderup ()

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Abstract

The rise in foreign direct investment and the increasing activity of multinational firms expose national corporate tax bases to cross-country profit shifting, but also lead to rising profitability of the corporate sector. We incorporate these two effects of economic integration into a simple political economy model where the median voter decides on a redistributive income tax rate. In this setting economic integration may raise or lower the equilibrium tax rate, depending on whether the higher excess burden of the tax or the larger redistributive gains from the perspective of the representative worker are the dominant effect. Our simple model holds several implications for future empirical work on the relationship between globalization and the effective rate of capital taxation.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1853.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1853

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Related research
Keywords: redistributive taxation; multinational firms; profit shifting;

Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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References listed on IDEAS
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  1. Borck, Rainald & Pfluger, Michael, 2006. "Agglomeration and tax competition," European Economic Review, Elsevier, vol. 50(3), pages 647-668, April. [Downloadable!] (restricted)
    Other versions:
  2. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Blackwell Publishing, vol. 59(4), pages 689-701, October. [Downloadable!] (restricted)
    Other versions:
  3. Marin, Dalia & Verdier, Thierry, 2002. "Globalization and the 'New Enterprise'," CEPR Discussion Papers 3640, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Trade costs, firms and productivity," Journal of Monetary Economics, Elsevier, vol. 53(5), pages 917-937, July. [Downloadable!] (restricted)
  5. 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)
  6. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February. [Downloadable!] (restricted)
    Other versions:
  7. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Kind, H.J. & Knarvik, K.H.M. & Schjelderup, G., 1999. "Competing for Capital in a "Lumpy" World," Papers 7/99, Norwegian School of Economics and Business Administration-.
    Other versions:
  9. Jack M. Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," International Tax Program Papers 0402, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised Apr 2003. [Downloadable!]
    Other versions:
  10. Slemrod, Joel, 2004. "Are corporate tax rates, or countries, converging?," Journal of Public Economics, Elsevier, vol. 88(6), pages 1169-1186, June. [Downloadable!] (restricted)
  11. Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "Why has the UK corporation tax raised so much revenue?," Fiscal Studies, Institute for Fiscal Studies, vol. 25(4), pages 367-388, December.
  12. Gottschalk, Silke & Peters, Wolfgang, 2003. "Redistributive Taxation in the Era of Globalization," International Tax and Public Finance, Springer, vol. 10(4), pages 453-68, August. [Downloadable!] (restricted)
  13. Silke Gottschalk & Wolfgang Peters, 2003. "Redistributive Taxation in the Era of Globalization," Asia-Pacific Financial Markets, Springer, vol. 10(4), pages 453-468, August. [Downloadable!] (restricted)
  14. Bretschger, Lucas & Hettich, Frank, 2002. "Globalisation, capital mobility and tax competition: theory and evidence for OECD countries," European Journal of Political Economy, Elsevier, vol. 18(4), pages 695-716, November. [Downloadable!] (restricted)
  15. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR, CES, MSH, vol. 17(35), pages 449-495, October. [Downloadable!] (restricted)
  16. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation. [Downloadable!]
  17. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 800-838, September. [Downloadable!] (restricted)
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