Increasing Returns in a Standard Tax Competition Model
AbstractThe standard tax competition literature predicts a race to the bottom in capital tax rates as capital mobility increases. Recently, the very different modeling framework of the new economic geography literature has produced the contrasting result that economic integration leads to agglomeration rents to capital which can be taxed away, in turn leading to higher corporate taxation. This paper incorporates increasing returns directly into the standard tax competition modeling framework to identify the origin of this disparity of results. The model illustrates that increasing returns reduce traditional tax competition pressures as capital mobility increases, and that changes in preferences for the public good, combined with increasing cross-border ownership of capital, and thus taxexporting incentives, are the main factors driving tax rates higher. Tax exporting has not previously been linked endogenously to capital mobility in standard tax competition models or new economic geography models.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 02-2004.
Date of creation: 10 Jun 2004
Date of revision:
Tax competition; Capital mobility; Economic Geography; Increasing Returns; Tax Exporting.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-21 (All new papers)
- NEP-PBE-2006-02-22 (Public Economics)
- NEP-URE-2006-03-20 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andersson, Fredrik & Forslid, Rikard, 1999.
"Tax Competition and Economic Geography,"
CEPR Discussion Papers
2220, C.E.P.R. Discussion Papers.
- Forslid, Rikard & Andersson, Fredrik, 1999. "Tax Competition and Economic Geography," Research Papers in Economics 2000:5, Stockholm University, Department of Economics.
- Fredrik Andersson & Rikard Forslid, 2000. "Tax Competition and Economic Geography," Econometric Society World Congress 2000 Contributed Papers 1356, Econometric Society.
- 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.
- Huizinga, H. & Nielsen, S.B., 1995.
"Capital Income and Profits Taxation with Foreign Ownership of Firms,"
9582, Tilburg - Center for Economic Research.
- Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February.
- Huizinga, H.P. & Nielsen, S.B., 1995. "Capital income and profits taxation with foreign ownership of firms," Discussion Paper 1995-82, Tilburg University, Center for Economic Research.
- Harry Huizinga & Soeren Bo Nielsen, . "Capital Income and Profits Taxation with Foreign Ownerwhip of Firms," EPRU Working Paper Series 95-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Huizinga, H.P. & Nielsen, S.B., 1997. "Capital income and profit taxation with foreign ownership of firms," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73857, Tilburg University.
- Ludema, Rodney D. & Wooton, Ian, 2000.
"Economic geography and the fiscal effects of regional integration,"
Journal of International Economics,
Elsevier, vol. 52(2), pages 331-357, December.
- Ludema, Rodney D & Wooton, Ian, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," CEPR Discussion Papers 1822, C.E.P.R. Discussion Papers.
- Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," Working Papers 9809, Business School - Economics, University of Glasgow.
- Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
- Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 1999.
"Competing for Capital in a 'Lumpy' World,"
CEPR Discussion Papers
2188, C.E.P.R. Discussion Papers.
- 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-.
- Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2000. "Competing for Capital in a "Lumpy" World," CESifo Working Paper Series 252, CESifo Group Munich.
- Richard Baldwin; Paul Krugman, 2001.
"Agglomeration, Integration and Tax Harmonization,"
IHEID Working Papers
01-2001, Economics Section, The Graduate Institute of International Studies.
- Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
- Baldwin, Richard & Krugman, Paul, 2000. "Agglomeration, Integration and Tax Harmonization," CEPR Discussion Papers 2630, C.E.P.R. Discussion Papers.
- Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
- Ottaviano, Gianmarco Ireo Paolo & van Ypersele, Tanguy, 2002. "Market Access and Tax Competition," CEPR Discussion Papers 3638, C.E.P.R. Discussion Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johannes Eugster).
If references are entirely missing, you can add them using this form.