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Is Partial Tax Harmonization Desirable?

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  • Conconi, Paola

    (Université Libre de Bruxelles (ECARES), University of Warwick (CSGR) and CEPR)

  • Perroni, Carlo

    (University of Warwick and CESifo)

  • Riezman, Raymond

    (University of Iowa and CESifo)

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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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 795.

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Length: 18 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:wrk:warwec:795

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Keywords: Tax Competition ; Commitment ; Partial Coordination;

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References

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  1. Benhabib, J. & Rustichini, A., 1996. "Optimal Taxes Without Commitment," Working Papers 96-18, C.V. Starr Center for Applied Economics, New York University.
  2. Paola Conconi & Carlo Perroni, 2002. "Issue linkage and issue tie-in in international negotiations," ULB Institutional Repository 2013/5839, ULB -- Universite Libre de Bruxelles.
  3. Peter Birch Sørensen, 2000. "The case for international tax co-ordination reconsidered," Economic Policy, CEPR & CES & MSH, vol. 15(31), pages 429-472, October.
  4. Conconi, P. & Perroni, C., 2000. "Issue Linkage and Issue Tie-in in Multilateral Negotiations," The Warwick Economics Research Paper Series (TWERPS) 558, University of Warwick, Department of Economics.
  5. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
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  8. Conconi, Paola & Perroni, Carlo, 2006. "Do Credible Domestic Institutions Promote Credible International Agreements?," CEPR Discussion Papers 5762, C.E.P.R. Discussion Papers.
  9. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers W94/07, Institute for Fiscal Studies.
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Citations

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Cited by:
  1. Jun-ichi Itaya & Makoto Okamuraz & Chikara Yamaguchix, 2009. "Partial tax coordination in a repeated game setting," Working Papers 2009/15, Institut d'Economia de Barcelona (IEB).
  2. Haufler, Andreas & Lülfesmann, Christoph, 2013. "Reforming an Asymmetric Union: On the Virtues of Dual Tier Capital Taxation," Discussion Papers in Economics 14358, University of Munich, Department of Economics.
  3. Jun-ichi Itaya & Makoto Okamura & Chikara Yamaguchi, 2010. "Partial Tax Coordination in a Repeated Game Setting," CESifo Working Paper Series 3127, CESifo Group Munich.
  4. Leon Bettendorf & Albert van der Horst & Ruud de Mooij & Hendrik Vrijburg, 2009. "Corporate tax consolidation and enhanced cooperation in the European Union," CPB Discussion Paper 132, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Yutao Han & Patrice Pieretti & Benteng Zou, 2013. "On the desirability of tax coordination when countries compete in taxes and infrastructure," Working Papers 476, Bielefeld University, Center for Mathematical Economics.
  6. Naghavi, Alireza, 2010. "Trade sanctions and green trade liberalization," Environment and Development Economics, Cambridge University Press, vol. 15(04), pages 379-394, August.

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