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Is Partial Tax Harmonization Desirable?

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  • Paola Conconi
  • Paola Riezman
  • Carlo Perroni

Abstract

We consider a setting in which capital taxation is characterized by two distortions working in opposite directions. On one hand, governments engage in tax competition and are tempted to lower capital tax rates. On the other hand, they are unable to commit to future policies and, once capital has been installed, have incentives to increase taxes. In this setting, there exists a tax that optimally trades off the two distortions. We compare three possible tax harmonization scenarios: no tax harmonization (all countries set taxes unilaterally), global tax harmonization (all countries coordinate their capital taxes), and partial tax harmonization (only a subset of all countries coordinate capital taxes). We show that, if capital is sufficiently mobile, partial tax harmonization benefits all countries compared to both global and no harmonization.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/98550.

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Date of creation: 2008
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Publication status: Published in: Journal of public economics (2008) v.92,p.254-267
Handle: RePEc:ulb:ulbeco:2013/98550

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Citations

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Cited by:
  1. Naghavi, Alireza, 2010. "Trade sanctions and green trade liberalization," Environment and Development Economics, Cambridge University Press, Cambridge University Press, vol. 15(04), pages 379-394, August.
  2. Andreas Haufler & Christoph Lülfesmann, 2013. "Reforming an Asymmetric Union: On the Virtues of Dual Tier Capital Taxation," CESifo Working Paper Series 4076, CESifo Group Munich.
  3. Leon Bettendorf & Albert Van Der Horst & Ruud A. De Mooij & Hendrik Vrijburg, 2010. "Corporate Tax Consolidation and Enhanced Cooperation in the European Union," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 31(4), pages 453-479, December.
  4. Humphery-Jenner, Mark, 2012. "The impact of the EU takeover directive on takeover performance and empire building," Journal of Corporate Finance, Elsevier, Elsevier, vol. 18(2), pages 254-272.
  5. Yutao Han & Patrice Pieretti & Benteng Zou, 2013. "On the desirability of tax coordination when countries compete in taxes and infrastructure," Working Papers, Bielefeld University, Center for Mathematical Economics 476, Bielefeld University, Center for Mathematical Economics.
  6. Jun-ichi Itaya & Makoto Okamuraz & Chikara Yamaguchix, 2009. "Partial tax coordination in a repeated game setting," Working Papers, Institut d'Economia de Barcelona (IEB) 2009/15, Institut d'Economia de Barcelona (IEB).
  7. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer, Springer, vol. 21(1), pages 119-152, February.
  8. Jun-ichi Itaya & Makoto Okamura & Chikara Yamaguchi, 2010. "Partial Tax Coordination in a Repeated Game Setting," CESifo Working Paper Series 3127, CESifo Group Munich.
  9. Yutao Han, 2013. "Who benefits from partial tax coordination?," CREA Discussion Paper Series 13-24, Center for Research in Economic Analysis, University of Luxembourg.

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