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Implementing Tax Coordination

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  • Amrita Dhillon
  • Carlo Perroni
  • Kimberley A. Scharf

Abstract

This paper investigates whether tax competition can survive under tax coordination, when information is private or nonverifiable. We focus on a two-jurisdiction model where capital can move across jurisdictions, and where the two jurisdictions have different public good requirements, but are otherwise identical. In this setting, coordination may call for a second-best allocation supported by differentiated tax rates for the two jurisdictions. If, however, information on jurisdiction types is private, such a second-best allocation may not be implementable. We show that the presence of private information will generally affect not only the choice of harmonized rates in states where jurisdictions are different, but also the choice of harmonized rates in states where jurisdictions have identical public good requirements.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 97-09.

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Handle: RePEc:kud:epruwp:97-09

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References

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  1. de CROMBRUGGHE, Alain & TULKENS, Henry, . "On Pareto improving commodity tax changes under fiscal competition," CORE Discussion Papers RP -895, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Philippe Bacchetta & Maria Paz Espinosa, 1993. "Information Sharing and Tax Competition Among Governments," CEPR Financial Markets Paper 0028, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  3. Huizinga, H.P. & Nielsen, S.B., 1997. "The taxation of interest in Europe: A minimum withholding tax?," Discussion Paper 1997-73, Tilburg University, Center for Economic Research.
  4. Massimo Bordignon & Paolo Manasse & Guido Tabellini, . "Optimal Regional Redistribution Under Asymmetric Information," Working Papers 93, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Gordon, R.H. & Bovenberg, A.L., 1994. "Why is capital so immobile internationally?: Possible explanations and implications for capital income taxation," Discussion Paper 1994-63, Tilburg University, Center for Economic Research.
  6. Keen, Michael, 1987. "Welfare effects of commodity tax harmonisation," Journal of Public Economics, Elsevier, vol. 33(1), pages 107-114, June.
  7. Richard C. Cornes & Emilson C. D. Silva, 2003. "Public Good Mix in a Federation with Incomplete Information," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 381-397, 04.
  8. Turunen-Red, Arja H & Woodland, Alan D, 1990. "Multilateral Reform of Domestic Taxes," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 160-86, January.
  9. Cremer, H. & Marchand, M. & Pestieau, P., . "Interregional redistribution through tax surcharge," CORE Discussion Papers RP -1218, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
  11. Lockwood, Ben, 1992. "Commodity Tax Competition Under Destination and Origin Principles," CEPR Discussion Papers 733, C.E.P.R. Discussion Papers.
  12. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  13. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  14. Horst Raff & John Wilson, 1997. "Income Redistribution with Well-Informed Local Governments," International Tax and Public Finance, Springer, vol. 4(4), pages 407-427, November.
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Cited by:
  1. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2001. "Tax Competition, Capital Mobility and Public Good Provision Within a Trading Block," CESifo Working Paper Series 524, CESifo Group Munich.
  2. Janeba, Eckhard & Smart, Michael, 2003. "Is Targeted Tax Competition Less Harmful Than Its Remedies?," International Tax and Public Finance, Springer, vol. 10(3), pages 259-80, May.
  3. Hristu-Varsakelis, Dimitrios & Karagianni, Stella & Saraidaris, Anastasios, 2011. "Equilibrium conditions in corporate tax competition and Foreign Direct Investment flows," Economic Modelling, Elsevier, vol. 28(1-2), pages 13-21, January.
  4. PERALTA, Susana & van YPERSELE, Tanguy, 2002. "Coordination of capital taxation among Asymmetric countries," CORE Discussion Papers 2002032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Davide Furceri & Georgios Karras, 2011. "Tax Design in the OECD: A Test of the Hines-Summers Hypothesis," Eastern Economic Journal, Palgrave Macmillan, vol. 37(2), pages 239-247.
  6. Bruce A. Blonigen & Lindsay Oldenski & Nicholas Sly, 2011. "Separating the Opposing Effects of Bilateral Tax Treaties," NBER Working Papers 17480, National Bureau of Economic Research, Inc.
  7. Krause, Günter, 2004. "The provision of public inputs in a federation under asymmetric information," W.E.P. - Würzburg Economic Papers 52, University of Würzburg, Chair for Monetary Policy and International Economics.
  8. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June Cita.
  9. Kolmar, Martin, 2002. "Income redistribution in an economic union: Does asymmetric information legitimize centralization?," Discussion Papers, Series 1 317, University of Konstanz, Department of Economics.
  10. Rizzo Leonzio, 2006. "Le inefficienze della competizione fiscale: una rassegna dei principali modelli teorici," Economia politica, Società editrice il Mulino, issue 1, pages 89-120.
  11. Redoano, Michela & Scharf, Kimberly A., 2004. "The political economy of policy centralization: direct versus representative democracy," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 799-817, March.
  12. Amrita Dhillon & Myrna H. Wooders & Ben Zissimos, 2006. "Tax Competition Reconsidered," Vanderbilt University Department of Economics Working Papers 0602, Vanderbilt University Department of Economics.
  13. Krause, Günter, 2004. "On the role of budgeting in the delegated provision of public goods under asymmetric information," W.E.P. - Würzburg Economic Papers 51, University of Würzburg, Chair for Monetary Policy and International Economics.
  14. Neumann, Rebecca & Holman, Jill & Alm, James, 2009. "Globalization and tax policy," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 193-211, August.
  15. Sorensen, Peter Birch, 2004. "International tax coordination: regionalism versus globalism," Journal of Public Economics, Elsevier, vol. 88(6), pages 1187-1214, June.

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