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Corporate Tax Games With Cross‐Border Externalities From Public Infrastructure

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  • Gerda Dewit
  • Kate Hynes
  • Dermot Leahy

Abstract

We construct a model of corporate tax competition in which governments also use public infrastructure investment to attract foreign direct investment, thus enhancing their tax bases. In doing so, we allow for cross‐border infrastructural externalities. Depending on the externality, governments are shown to strategically over‐ or underinvest in infrastructure. We also examine how tax cooperation influences investment in infrastructure and find that welfare may be lower under tax cooperation than under tax competition; this is the case when infrastructure is very effective in raising the tax base and generates a large negative cross‐border externality. (JEL F23, H40)

Suggested Citation

  • 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.
  • Handle: RePEc:bla:ecinqu:v:56:y:2018:i:2:p:1047-1063
    DOI: 10.1111/ecin.12516
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    References listed on IDEAS

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    Cited by:

    1. Ronald B. Davies & Yutao Han & Kate Hynes & Yong Wang, 2020. "Competition in Taxes and IPR," Working Papers 202019, School of Economics, University College Dublin.

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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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