IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/112790.html
   My bibliography  Save this paper

Global Corporate Income Tax Competition, Knowledge Spillover, and Growth

Author

Listed:
  • Maebayashi, Noritaka
  • Morimoto, Keiichi

Abstract

In a two-country model of endogenous growth with international knowledge spillover, corporate income tax competition reproduces the second-best allocation attained by tax harmonization, despite complex externalities. This stems from the positive spillover effect across the border and free trading by Ricardian households in the global financial market. However, such a neutrality result does not hold in the extended model, which includes non-Ricardian households. The equilibrium tax rate under the corporate income tax competition can be excessively high or low, depending on the elasticity of the spillover effect to the share of the firms’ locations.

Suggested Citation

  • Maebayashi, Noritaka & Morimoto, Keiichi, 2022. "Global Corporate Income Tax Competition, Knowledge Spillover, and Growth," MPRA Paper 112790, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:112790
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/112790/1/Maeb_Morimoto_01_20220408.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/114602/1/MPRA_paper_114602.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Wildasin, David E., 2003. "Fiscal competition in space and time," Journal of Public Economics, Elsevier, vol. 87(11), pages 2571-2588, October.
    2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    3. Aghion, Philippe & Akcigit, Ufuk & Cagé, Julia & Kerr, William R., 2016. "Taxation, corruption, and growth," European Economic Review, Elsevier, vol. 86(C), pages 24-51.
    4. Coe, David T. & Helpman, Elhanan, 1995. "International R&D spillovers," European Economic Review, Elsevier, vol. 39(5), pages 859-887, May.
    5. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    6. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
    7. Borck, Rainald & Pfluger, Michael, 2006. "Agglomeration and tax competition," European Economic Review, Elsevier, vol. 50(3), pages 647-668, April.
    8. Chu, Angus C. & Yang, C.C., 2012. "Fiscal centralization versus decentralization: Growth and welfare effects of spillovers, Leviathan taxation, and capital mobility," Journal of Urban Economics, Elsevier, vol. 71(2), pages 177-188.
    9. Gerda Dewit & Kate Hynes & Dermot Leahy, 2018. "Corporate Tax Games With Cross‐Border Externalities From Public Infrastructure," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1047-1063, April.
    10. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
    11. Lars P. Feld & Jost H. Heckemeyer, 2011. "Fdi And Taxation: A Meta‐Study," Journal of Economic Surveys, Wiley Blackwell, vol. 25(2), pages 233-272, April.
    12. Marius Brülhart & Mario Jametti & Kurt Schmidheiny, 2012. "Do agglomeration economies reduce the sensitivity of firm location to tax differentials?," Economic Journal, Royal Economic Society, vol. 122(563), pages 1069-1093, September.
    13. Hauptmeier, Sebastian & Mittermaier, Ferdinand & Rincke, Johannes, 2012. "Fiscal competition over taxes and public inputs," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 407-419.
    14. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
    15. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
    16. repec:fth:harver:1435 is not listed on IDEAS
    17. Peretto, Pietro F., 2007. "Corporate taxes, growth and welfare in a Schumpeterian economy," Journal of Economic Theory, Elsevier, vol. 137(1), pages 353-382, November.
    18. Görg, Holger & Molana, Hassan & Montagna, Catia, 2009. "Foreign direct investment, tax competition and social expenditure," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 31-37, January.
    19. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
    20. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
    21. Koethenbuerger, Marko & Lockwood, Ben, 2010. "Does tax competition really promote growth?," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 191-206, February.
    22. Miyazawa, Kazutoshi & Ogawa, Hikaru & Tamai, Toshiki, 2019. "Capital market integration and fiscal sustainability," European Economic Review, Elsevier, vol. 120(C).
    23. Monika Schnitzer & Martin Watzinger, 2022. "Measuring the Spillovers of Venture Capital," The Review of Economics and Statistics, MIT Press, vol. 104(2), pages 276-292, May.
    24. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-625, December.
    25. Colin Davis & Ken‐ichi Hashimoto, 2018. "Corporate Tax Policy And Industry Location With Fully Endogenous Productivity Growth," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1136-1148, April.
    26. Philippe Aghion & Xavier Jaravel, 2015. "Knowledge Spillovers, Innovation and Growth," Economic Journal, Royal Economic Society, vol. 0(583), pages 533-573, March.
    27. Pietro F. Peretto, 2011. "The Growth and Welfare Effects of Deficit‐Financed Dividend Tax Cuts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 835-869, August.
    28. Peretto, Pietro F, 2003. "Fiscal Policy and Long-Run Growth in R&D-Based Models with Endogenous Market Structure," Journal of Economic Growth, Springer, vol. 8(3), pages 325-347, September.
    29. Pedro R.D. Bom & Jenny E. Ligthart, 2014. "What Have We Learned From Three Decades Of Research On The Productivity Of Public Capital?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 889-916, December.
    30. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
    31. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    32. Hatfield, John William, 2015. "Federalism, taxation, and economic growth," Journal of Urban Economics, Elsevier, vol. 87(C), pages 114-125.
    33. Daniel Becker & Michael Rauscher, 2013. "Fiscal Competition and Growth When Capital Is Imperfectly Mobile," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(1), pages 211-233, January.
    34. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
    35. Benassy, Jean-Pascal, 1998. "Is there always too little research in endogenous growth with expanding product variety?," European Economic Review, Elsevier, vol. 42(1), pages 61-69, January.
    36. Coe, David T. & Helpman, Elhanan & Hoffmaister, Alexander W., 2009. "International R&D spillovers and institutions," European Economic Review, Elsevier, vol. 53(7), pages 723-741, October.
    37. repec:hal:spmain:info:hdl:2441/1i2ig6hi2i8so8g8jbnuokstbu is not listed on IDEAS
    38. repec:wly:soecon:v:83:2:y:2016:p:590-608 is not listed on IDEAS
    39. Hwang, Sun Ho & Kim, Yun Jung, 2018. "Capital mobility in OECD countries: A multi-level factor approach to saving–investment correlations," Economic Modelling, Elsevier, vol. 69(C), pages 150-159.
    40. Michael Rauscher, 2005. "Economic Growth and Tax-Competing Leviathans," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 457-474, August.
    41. Aghion, Philippe & Akcigit, Ufuk & Cagé, Julia & Kerr, William R., 2016. "Taxation, corruption, and growth," European Economic Review, Elsevier, vol. 86(C), pages 24-51.
    42. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    43. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
    44. Toshiki Tamai, 2008. "A Note on the Dynamic Analysis of Fiscal Competition," Urban Studies, Urban Studies Journal Limited, vol. 45(3), pages 651-657, March.
    45. Arjan Lejour & Harrie Verbon, 1997. "Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 485-497, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maebayashi, Noritaka & Morimoto, Keiichi, 2022. "Global Corporate Income Tax Competition, Knowledge Spillover, and Growth," MPRA Paper 112781, University Library of Munich, Germany.
    2. Tamai, Toshiki, 2022. "Tax competition versus tax coordination in a multi-region endogenous growth model with an integrated capital market," Economic Modelling, Elsevier, vol. 114(C).
    3. Takeo Hori & Noritaka Maebayashi & Keiichi Morimoto, 2018. "Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy," Discussion Papers 41, Meisei University, School of Economics.
    4. Gechert, Sebastian & Heimberger, Philipp, 2022. "Do corporate tax cuts boost economic growth?," European Economic Review, Elsevier, vol. 147(C).
    5. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1123-1196, Elsevier.
    6. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2014. "Fiscal Federalism, Decentralization and Economic Growth: Survey and Meta-Analysis," CESifo Working Paper Series 4985, CESifo.
    7. Sandy Fréret & Denis Maguain, 2017. "The effects of agglomeration on tax competition: evidence from a two-regime spatial panel model on French data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 1100-1140, December.
    8. Eva Luthi & Kurt Schmidheiny, 2014. "The effect of agglomeration size on local taxes," Journal of Economic Geography, Oxford University Press, vol. 14(2), pages 265-287.
    9. Koh, Hyun-Ju & Riedel, Nadine & Böhm, Tobias, 2013. "Do governments tax agglomeration rents?," Journal of Urban Economics, Elsevier, vol. 75(C), pages 92-106.
    10. Ken Tabata, 2021. "Patent protection and public capital accumulation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 154-190, February.
    11. Karen Crabbé & Karolien De Bruyne, 2013. "Taxes, Agglomeration Rents and Location Decisions of Firms," De Economist, Springer, vol. 161(4), pages 421-446, December.
    12. Daniel Becker & Michael Rauscher, 2007. "Fiscal Competition in Space and Time: An Endogenous-Growth Approach," CESifo Working Paper Series 2048, CESifo.
    13. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    14. Sato, Yasuhiro & Thisse, Jacques-Francois, 2007. "Competing for capital when labor is heterogeneous," European Economic Review, Elsevier, vol. 51(8), pages 2054-2079, November.
    15. Colin Davis & Ken‐ichi Hashimoto, 2018. "Corporate Tax Policy And Industry Location With Fully Endogenous Productivity Growth," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1136-1148, April.
    16. Miyagiwa, Kaz & Sato, Yasuhiro, 2014. "Free entry and regulatory competition in a global economy," Journal of Public Economics, Elsevier, vol. 118(C), pages 1-14.
    17. Michiel Gerritse, 2010. "Policy competition and agglomeration: a local government view," Working Papers 2010/31, Institut d'Economia de Barcelona (IEB).
    18. Arcalean, Calin, 2018. "Dynamic fiscal competition: A political economy theory," Journal of Public Economics, Elsevier, vol. 164(C), pages 211-224.
    19. Calin Arcalean, 2017. "International Tax Competition And The Deficit Bias," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 51-72, January.
    20. Calin Arcaelan, 2015. "International Tax Competition and the Deficit Bias," CESifo Working Paper Series 5627, CESifo.

    More about this item

    Keywords

    corporate income tax; tax competition; spillover; welfare; economic growth; non- Ricardian household;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:112790. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.