Tax competition with heterogeneous capital mobility
AbstractIn this paper, we look at corporate fiscal policies set by two competing regions in an environment where firms are heterogonous regarding to their mobility costs. We show that if regions are allow to tax domestic and foreign capital at different rates, they will offer a preferential treatment to foreign firms, even if mobility costs are symmetrically distributed across regions. Preventing such type of preferential treatment raises revenues for both regions, unless there exist a high density of firms with low moving costs. Because preferential tax treatment promotes firms movement for fiscal raisons, such tax regime always generates more social loss due to unnecessary delocalization. We also investigate the effect of heterogeneity among regions.
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Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2011/25.
Length: 32 pages
Date of creation: 2011
Date of revision:
tax competition; capital; mobility; preferential and non-preferential tax regimes;
Find related papers by JEL classification:
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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