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Enhanced Cooperation in an Asymmetric Model of Tax Competition

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  • Hendrik Vrijburg

    (Erasmus University Rotterdam)

  • Ruud A. de Mooij

    (Erasmus University Rotterdam)

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 Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-011/3.

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Date of creation: 11 Jan 2010
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Handle: RePEc:dgr:uvatin:20100011

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

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  1. Konrad, Kai A. & Schjelderup, Guttorm, 1999. "Fortress Building in Global Tax Competition," Journal of Urban Economics, Elsevier, vol. 46(1), pages 156-167, July.
  2. Beaudry, Paul & Cahuc, Pierre & Kempf, Hubert, 2000. " Is It Harmful to Allow Partial Cooperation?," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 102(1), pages 1-21, March.
  3. Alesina, Alberto F & Angeloni, Ignazio & Etro, Federico, 2003. "International Unions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3913, C.E.P.R. Discussion Papers.
  4. Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, Elsevier, vol. 91(7-8), pages 1533-1554, August.
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  6. Bayindir-Upmann, Thorsten & Ziad, Abderrahmanne, 2005. "Existence of equilibria in a basic tax-competition model," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 35(1), pages 1-22, January.
  7. Leon Bettendorf & Albert van der Horst & Ruud de Mooij & Hendrik Vrijburg, 2009. "Corporate tax consolidation and enhanced cooperation in the European Union," CPB Discussion Paper 132, CPB Netherlands Bureau for Economic Policy Analysis.
  8. Peter Birch Sørensen, 2000. "The case for international tax co-ordination reconsidered," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(31), pages 429-472, October.
  9. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  10. Manzini, Paola & Mariotti, Marco, 2002. " A "Tragedy of the Clubs": Excess Entry in Exclusive Coalitions," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 115-36.
  11. Ben Lockwood, 2004. "Competition in Unit vs. Ad Valorem Taxes," International Tax and Public Finance, Springer, Springer, vol. 11(6), pages 763-772, November.
  12. Bordignon, Massimo & Brusco, Sandro, 2006. "On enhanced cooperation," Journal of Public Economics, Elsevier, Elsevier, vol. 90(10-11), pages 2063-2090, November.
  13. Peter Sørensen, 2004. "Company Tax Reform in the European Union," International Tax and Public Finance, Springer, Springer, vol. 11(1), pages 91-115, January.
  14. Jens Brøchner & Jesper Jensen & Patrik Svensson & Peter Birch Sørensen, 2006. "The Dilemmas of Tax Coordination in the Enlarged European Union," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2006-11, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  15. 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.
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Cited by:
  1. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers, Max Planck Institute for Tax Law and Public Finance international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
  2. Thomas Eichner & Rüdiger Pethig, 2013. "Self-Enforcing Capital Tax Coordination," CESifo Working Paper Series 4454, CESifo Group Munich.
  3. Ruud A. de Mooij & Hendrik Vrijburg, 2012. "Tax Rates as Strategic Substitutes," Tinbergen Institute Discussion Papers, Tinbergen Institute 12-104/VI, Tinbergen Institute.

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