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International Tax Competition and the Deficit Bias

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  • Calin Arcaelan

Abstract

I analyze the dynamic effects of tax competition on public budget deficits. I find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization. When countries differ in terms of capital mobility, further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge. Consistent with theory, I find that stronger tax competition increases deficits in a sample of OECD countries, controlling for tax revenues and other standard determinants of fiscal deficits.

Suggested Citation

  • Calin Arcaelan, 2015. "International Tax Competition and the Deficit Bias," CESifo Working Paper Series 5627, CESifo.
    • Handle: RePEc:ces:ceswps:_5627
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    More about this item

    Keywords

    international tax competition; political economy; deficit bias; redistribution;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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