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Tax competition with heterogeneous capital mobility

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Author Info

  • Steeve Mongrain

    ()
    (Simon Fraser University)

  • John D. Wilson

    ()
    (Michigan State University)

Abstract

In 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 Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2011/25.

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Length: 32 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:ieb:wpaper:2011/10/doc2011-25

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Related research

Keywords: tax competition; capital; mobility; preferential and non-preferential tax regimes;

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References

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  1. Qing Hong & Michael Smart, 2006. "In praise of tax havens: International tax planning and foreign direct investment," Working Papers tecipa-265, University of Toronto, Department of Economics.
  2. Konrad, Kai A & Kovenock, Dan, 2008. "Competition for FDI with Vintage Investment and Agglomeration Advantages," CEPR Discussion Papers 6740, C.E.P.R. Discussion Papers.
  3. Eckhard Janeba & Michael Smart, 2001. "Is Targeted Tax Competition Less Harmful than its Remedies?," CESifo Working Paper Series 590, CESifo Group Munich.
  4. Wildasin, David E. & Wilson, John Douglas, 1996. "Imperfect mobility and local government behaviour in an overlapping-generations model," Journal of Public Economics, Elsevier, vol. 60(2), pages 177-198, May.
  5. Hagen, K.P. & Osmundsen, P. & Schjelderup, G., 1995. "Internationally Mobile Firms and Tax Policy," Papers 8/95, Norwegian School of Economics and Business Administration-.
  6. Keen, Michael, 2001. "Preferential Regimes Can Make Tax Competition Less Harmful," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 757-62, December.
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Cited by:
  1. Sebastian Krautheim & Tim Schmidt-Eisenlohr, 2011. "Wages and International Tax Competition," Working Papers 1123, Oxford University Centre for Business Taxation.

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