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EU regional policy and tax competition

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  • Becker, Johannes
  • Fuest, Clemens

Abstract

The European Union (EU) provides coordination and financing of trans-European transport infrastructures, i.e. roads and railways, which link the EU member states and reduce the cost of transport and mobility. This raises the question of whether EU involvement in this area is justified by inefficiencies of national infrastructure policies. Moreover, an often expressed concern is that policies enhancing mobility may boost tax competition. We analyze these questions using a model where countries compete for the location of profitable firms. We show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition. In contrast, with regard to union-periphery infrastructure, the union has an interest in a coordinated reduction of investment expenditures. Here, the effects on tax competition are ambiguous. Our results provide a rationale for EU-level regional policy that supports the development of intra-union infrastructure.

Suggested Citation

  • Becker, Johannes & Fuest, Clemens, 2010. "EU regional policy and tax competition," European Economic Review, Elsevier, vol. 54(1), pages 150-161, January.
  • Handle: RePEc:eee:eecrev:v:54:y:2010:i:1:p:150-161
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    Citations

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    Cited by:

    1. Alexei Alexandrov & Özlem Bedre-Defolie, 2011. "Sales tax competition and a multinational with a decreasing marginal cost," ESMT Research Working Papers ESMT-11-01, ESMT European School of Management and Technology.
    2. Alexander Haupt & Tim Krieger, 2009. "The Role of Mobility in Tax and Subsidy Competition," CESifo Working Paper Series 2555, CESifo Group Munich.
    3. Darby, Julia & Ferrett, Ben & Wooton, Ian, 2014. "Regional centrality and tax competition for FDI," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 84-92.
    4. Wataru Johdo, 2013. "Corporate Tax Reductions, Cross-Border Ownership and Welfare," The Japanese Economic Review, Japanese Economic Association, vol. 64(4), pages 484-503, December.
    5. Darby, Julia & Ferrett, Ben & Wooton, Ian, 2013. "FDI, Trade Costs and Regional Asymmetries," SIRE Discussion Papers 2013-106, Scottish Institute for Research in Economics (SIRE).
    6. Kyoko Hirose & Kazuhiro Yamamoto, 2013. "Asymmetric international transport costs and tax competition: the influence of a third country," Discussion Papers 59, Kyushu Sangyo University, Faculty of Economics.
    7. Becker, Johannes & Fuest, Clemens, 2010. "EU regional policy and tax competition," European Economic Review, Elsevier, vol. 54(1), pages 150-161, January.
    8. Apergis, Nicholas & Cooray, Arusha, 2014. "Tax revenues convergence across ASEAN, Pacific and Oceania countries: Evidence from club convergence," Journal of Multinational Financial Management, Elsevier, vol. 27(C), pages 11-21.
    9. Robert Alexander & Rui-cong Sang & Sajid Anwar, 2016. "Regional Policy and Industrial Relocation in China: A Panel Data Analysis," EcoMod2016 9277, EcoMod.
    10. Andra-Madalina, PANTILIE, 2014. "Economic Development From The Perspective Of Regional Policies," Management Strategies Journal, Constantin Brancoveanu University, vol. 26(4), pages 104-110.
    11. Daniel Hopp & Michael Kriebel, 2016. "The political economy of interregional competition for firms," CQE Working Papers 5616, Center for Quantitative Economics (CQE), University of Muenster.
    12. Johannes Becker & Andrea Schneider, 2014. "Bidding for Firms with Unknown Characteristics," CESifo Working Paper Series 4806, CESifo Group Munich.
    13. Kate Hynes & Jie Ma & Cheng Yuan, 2017. "Transport Infrastructure Investments and Competition for FDI," Working Papers 201718, School of Economics, University College Dublin.
    14. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
    15. Hopp, Daniel & Kriebel, Michael, 2016. "The political economy of interregional competition for firms," Annual Conference 2016 (Augsburg): Demographic Change 145693, Verein für Socialpolitik / German Economic Association.
    16. Sanz Córdoba, Patrícia & Theilen, Bernd, 1965-, 2016. "Partial tax harmonization through infrastructure coordination," Working Papers 2072/261535, Universitat Rovira i Virgili, Department of Economics.

    More about this item

    Keywords

    European Union Infrastructure Regional policy Tax competition;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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