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Tax competition and information sharing in Europe: a signalling game

  • Andre Fourcans
  • Thierry Warin

This paper provides a challenging view to the tax harmonisation issue. The literature often proposes tax harmonisation to avoid free-riding behaviours in free-trade areas and more particularly in monetary unions. Without tax harmonisation, tax autonomy may lead to a "race to the bottom". The model proposed here shows that tax competition may lead to stability. If a country gives the signal that 'friendly' or coordinated taxation behaviour is not its priority, the result can be a 'race to the bottom'. Conversely, if both countries signal their ability to conduct such a war, this war will not occur, and the stability of the system will be ensured.

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Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Economics and Business Research.

Volume (Year): 2 (2010)
Issue (Month): 1/2 ()
Pages: 76-86

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Handle: RePEc:ids:ijecbr:v:2:y:2010:i:1/2:p:76-86
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