Can Tax Competition Lead to a Race to the Bottom in Europe? A Skeptical View
AbstractThis paper addresses the question of the likelihood of a race to the bottom in a monetary union, like the Euro-zone, that could result from tax competition between countries. This fear of a race to the bottom is used both in the economic literature and the political arena to promote tax harmonization. Using a game theoretical approach with the costs of changing tax policies to analyze the conditions of a race to the bottom, this paper shows that countries may not choose such an extreme strategy. In other words, the extreme case scenario of a race to the bottom is unlikely, and proponents of tax harmonization should base their reasoning upon other assumptions.
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Bibliographic InfoPaper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0604.
Length: 23 pages
Date of creation: Mar 2006
Date of revision:
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Monetary union; Economic integration; Tax competition; Tax harmonization; Fiscal competition;
Find related papers by JEL classification:
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-22 (All new papers)
- NEP-EEC-2006-04-22 (European Economics)
- NEP-PBE-2006-04-22 (Public Economics)
- NEP-URE-2006-04-22 (Urban & Real Estate Economics)
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