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Relaxing Tax Competition through Public Good Differentation

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Author Info
Zissimos, Ben (Dept of Economics, Vanderbilt University)
Wooders, Myrna (Dept of Economics, Vanderbilt University)

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Abstract

This paper argues that, because governments are able to relax tax competition through public good differentiation, traditionally high-tax countries have continued to set taxes at a relatively high rate even as markets have become more integrated. The key assumption is that firms vary in the extent to which public good provision reduces costs. We show that Leviathan governments are able to use this fact to relax the forces of tax competition, reducing efficiency. When firms can ‘vote with their feet’ tax competition leads firms to locate in ‘too many’ jurisdictions. A ‘minimum tax’ further relaxes tax competition, further reducing efficiency.

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 737.

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Length: 45 pages
Date of creation: 2005
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Handle: RePEc:wrk:warwec:737

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Related research
Keywords: asymmetric equilibrium ; core-periphery ; non-renegotiable minimum tax ; tax competition ; tax harmonization;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
R50 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - General

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ben Zissimos & Myrna Wooders, 2003. "Public Good Differentiation and the Intensity of Tax Competition," Working Papers 0710, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  2. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June. [Downloadable!] (restricted)
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