Tax Competition and Information Sharing in Europe: A Signaling Game
AbstractThis paper provides a challenging view to the tax harmonization issue. The literature often proposes tax harmonization to avoid free-riding behaviors in free-trade areas, and more particularly in monetary unions. Countries may decrease their tax rates in order to develop tax competitive advantage and attract capital. Without tax harmonization, tax autonomy may lead to a “race to the bottom.” The model proposed here uses a game-theoretical approach to analyze this question. It shows that tax competition may lead to stability. The mechanism leading to this outcome rests upon the impact of the signal given by both players. If a country gives the signal that “friendly” taxation behavior is not its priority, the result can be a “race to the bottom”. Conversely, if both countries signal their ability to conduct such a war, this war will not occur, and the stability of the system will be ensured.
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Bibliographic InfoPaper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0605.
Length: 13 pages
Date of creation: Apr 2006
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Monetary union; Economic integration; Tax competition; Tax harmonization; Fiscal competition;
Other versions of this item:
- Andre Fourcans & Thierry Warin, 2010. "Tax competition and information sharing in Europe: a signalling game," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 2(1/2), pages 76-86.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-22 (All new papers)
- NEP-PBE-2006-04-22 (Public Economics)
- NEP-PUB-2006-04-22 (Public Finance)
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