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How mobile is capital within the European Union?

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  • Joeri Gorter
  • A. Parikh

Abstract

The key result of the tax competition literature is that governments set inefficiently low tax rates on income from internationally mobile production factors. Therefore, there is a case for coordination of EU capital income taxes, provided that capital is mobile within the EU. We measure how the international allocation of capital depends on taxation by examining the relation between FDI positions and effective corporate income tax rates. An EU country typically increases its FDI position in another EU country by approximately four percent if the latter decreases its effective corporate income tax rate by one percentage point relative to the EU mean. This conditionally support the recent efforts of the EU to coordinate capital income taxation. The benefits or costs of tax coordination ultimately depend, however, on whether one views the government as a social welfare maximising agent or tax revenue maximising leviathan.

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Bibliographic Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Research Memorandum with number 172.

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Date of creation: Nov 2000
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Handle: RePEc:cpb:resmem:172

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Cited by:
  1. Buettner, Thiess, 2002. "The impact of taxes and public spending on the location of FDI: evidence from FDI-flows within Europe," ZEW Discussion Papers 02-17, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Céline Azémar & Andrew Delios, 2007. "The Tax Sparing Provision Influence: A Credit versus Exempt Investors Analysis," Working Papers 2007_31, Business School - Economics, University of Glasgow.
  3. Eijffinger, S.C.W. & Wagner, W.B., 2008. "Efficiency of capital taxation in an open economy: Tax competition versus tax exportation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125166, Tilburg University.
  4. Torben M. Andersen, . "International Integration and the Welfare State," Economics Working Papers 2002-2, School of Economics and Management, University of Aarhus.
  5. Nick Draper & Free Huizinga, 2001. "The effect of corporate taxes on investment and the capital stock," CPB Memorandum 13, CPB Netherlands Bureau for Economic Policy Analysis.
  6. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer, vol. 10(6), pages 673-93, November.
  7. Sijbren Cnossen, 2002. "Tax Policy in the European Union: A Review of Issues and Options," CESifo Working Paper Series 758, CESifo Group Munich.
  8. Roberta De Santis & Maria Cristina Mercuri & Claudio Vicarelli, 2001. "Taxes and Location of Foreign Direct Investments: an Empirical Analysys for the European Union Countries," ISAE Working Papers 24, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).

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