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On tax competition, public goods provision and jurisdictions' size

  • Pieretti, Patrice
  • Zanaj, Skerdilajda

In this paper, we analyze competition among jurisdictions to attract foreign capital through low taxes and public inputs that enhance firms' productivity. The competing jurisdictions are different in size and mobility of capital is costly. We find that for moderate mobility costs, small economies can attract foreign capital by supplying higher levels of public goods than larger jurisdictions, without practicing tax undercutting. The classical result that small jurisdictions are attractive because they engage in tax dumping is recovered only for high mobility costs of capital.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 84 (2011)
Issue (Month): 1 (May)
Pages: 124-130

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Handle: RePEc:eee:inecon:v:84:y:2011:i:1:p:124-130
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  1. Nico A. Hansen & Anke S. Kessler, 2001. "The Political Geography of Tax H(e)avens and Tax Hells," American Economic Review, American Economic Association, vol. 91(4), pages 1103-1115, September.
  2. Marceau, Nicolas & Mongrain, Steeve & Wilson, John D., 2010. "Why do most countries set high tax rates on capital?," Journal of International Economics, Elsevier, vol. 80(2), pages 249-259, March.
  3. Haufler, Andreas & Wooton, Ian, 1997. "Tax Competition for Foreign Direct Investment," CEPR Discussion Papers 1583, C.E.P.R. Discussion Papers.
  4. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS) 642, University of Warwick, Department of Economics.
  5. Justman, Moshe & Thisse, Jacques-Francois & van Ypersele, Tanguy, 2002. "Taking the bite out of fiscal competition," Journal of Urban Economics, Elsevier, vol. 52(2), pages 294-315, September.
  6. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
  7. Jean Hindriks & Gareth D. Myles, 2006. "Intermediate Public Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262083442, June.
  8. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  9. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  10. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
  11. Jack Mintz & Henry Tulkens, 1984. "Commodity Tax Competition Between Member States of a Federation," Working Papers 558, Queen's University, Department of Economics.
  12. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  13. Streeten, Paul, 1993. "The special problems of small countries," World Development, Elsevier, vol. 21(2), pages 197-202, February.
  14. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
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