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The role of mobility in tax and subsidy competition

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  • Haupt, Alexander
  • Krieger, Tim

Abstract

In this paper, we analyse the role of mobility in tax and subsidy competition. Our primary result is that increasing ‘relocation’ mobility of firms leads to increasing ‘net’ tax revenues under fairly weak conditions. While enhanced relocation mobility intensifies tax competition, it weakens subsidy competition. The resulting fall in the governments’ subsidy payments over-compensates the decline in tax revenues, leading to a rise in net tax revenues. We derive this conclusion in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition, and firms locate and potentially relocate in response to the two political choices. --

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Bibliographic Info

Paper provided by University of Freiburg, Wilfried Guth Endowed Chair for Constitutional Political Economy and Competition Policy in its series Discussion Paper Series with number 2013-02.

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Date of creation: 2013
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Handle: RePEc:zbw:wgspdp:201302

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Keywords: tax competition; subsidy competition; capital and firm mobility; foreign direct investment;

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Cited by:
  1. Alexander Haupt & Tim Krieger, 2009. "The role of mobility in tax and subsidy competition," Working Papers 2009/37, Institut d'Economia de Barcelona (IEB).
  2. Tim Krieger & Thomas Lange, 2010. "Education policy and tax competition with imperfect student and labor mobility," International Tax and Public Finance, Springer, vol. 17(6), pages 587-606, December.

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