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Are your firmÕs taxes set in Warsaw? Spatial tax competition in Europe

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Author Info
CrabbŽ, Karen
VANDENBUSSCHE, Hylke (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

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Abstract

Tax competition within the EU is Þercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes tax responses of EU-15 countries to corporate tax changes in the EU-10 new member states as a function of their proximity to these new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, allowing Þrms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries geographically closer to the new member states respond stronger to corporate tax changes in these new member states. We use a theoretical and a spatial regression framework to test the hypothesis that distance to a low tax region intensiÞes countriesÕ tax reaction functions.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008081.

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Date of creation: 01 Dec 2008
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Handle: RePEc:cor:louvco:2008081

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Related research
Keywords: spatial tax competition; corporate taxes; fiscal reaction function.;

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Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other

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  1. Redoano, Michela, 2003. "Fiscal Interactions Among European Countries," The Warwick Economics Research Paper Series (TWERPS) 680, University of Warwick, Department of Economics. [Downloadable!]
  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)
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  3. Ruiz, Fernando & Gerard, Marcel, 2008. "Is there evidence of strategic corporate tax interaction among EU countries?," MPRA Paper 10094, University Library of Munich, Germany. [Downloadable!]
  4. Craig Brett & Joris Pinkse, 2000. "The determinants of municipal tax rates in British Columbia," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 695-714, August. [Downloadable!] (restricted)
    Other versions:
  5. Fredrik Carlsen, Bjørg Langset and Jørn Rattsø, 2005. "The relationship between firm mobility and tax level: Empirical evidence of fiscal competition between local governments," Discussion Papers 424, Research Department of Statistics Norway. [Downloadable!]
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  6. Ronald B. Davies & Johannes Voget, 2008. "Tax Competition in an Expanding European Union," Working Papers 0830, Oxford University Centre for Business Taxation. [Downloadable!]
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  7. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(2), pages 284-314, June. [Downloadable!] (restricted)
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  8. Egger, Peter & Pfaffermayr, Michael & Winner, Hannes, 2005. "An unbalanced spatial panel data approach to US state tax competition," Economics Letters, Elsevier, vol. 88(3), pages 329-335, September. [Downloadable!] (restricted)
  9. 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)
  10. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July. [Downloadable!] (restricted)
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  11. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2002. "In Search for Yardstick Competition: Property Tax Rates and Electoral Behavior in Italian Cities," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. 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)
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  13. Rosanne Altshuler & Timothy J. Goodspeed, 2002. "Follow the Leader? Evidence on European and U.S. Tax Competition," Departmental Working Papers 200226, Rutgers University, Department of Economics.
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