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When Do Small Countries Win Tax Wars?

Author

Listed:
  • Wolfgang Eggert

    (University of Konstanz)

  • Andreas Haufler

    (University of Konstanz)

Abstract

This article analyzes the conditions under which the smaller of two otherwise iden- tical countries prefers the noncooperative Nash equilibrium to a situation of fully harmonized tax rates. A standard two-country model of capital tax competition is extended by allowing for transaction costs, additional countries, and additional tax instruments The effects of introducing either mobility costs or a wage tax instru ment are theoretically ambiguous because they lower both the costs and the benefits of noncooperation from the perspective of the small country. Numerical simulations indicate, however, that for a wide range of parameter values, all model extensions considered reduce the possibility that the small country gains from tax competition.

Suggested Citation

  • Wolfgang Eggert & Andreas Haufler, 1998. "When Do Small Countries Win Tax Wars?," Public Finance Review, , vol. 26(4), pages 327-361, July.
  • Handle: RePEc:sae:pubfin:v:26:y:1998:i:4:p:327-361
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    Citations

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    Cited by:

    1. Andreas Haufler, 1999. "Prospects for co-ordination of corporate taxation and the taxation of interest income in the EU," Fiscal Studies, Institute for Fiscal Studies, vol. 20(2), pages 133-153, June.
    2. Libman, Alexander, 2009. "Russian federalism and post-Soviet integration: Divergence of development paths," MPRA Paper 12944, University Library of Munich, Germany.
    3. Sven Stöwhase, 2005. "Asymmetric Capital Tax Competition with Profit Shifting," Journal of Economics, Springer, vol. 85(2), pages 175-196, August.
    4. Libman, Alexander Mikhailovich, 2009. "Эндогенные Границы И Распределение Власти В Федерациях И Международных Сообществах
      [ENDOGENOUS BOUNDARIES AND DISTRIBUTION OF POWER In the Federation]
      ," MPRA Paper 16473, University Library of Munich, Germany.
    5. Ernesto Crivelli & Christian Volpe Martincus, 2007. "Horizontal and Vertical Tax Externalities in a Multicountry World," Bonn Econ Discussion Papers bgse8_2007, University of Bonn, Germany.
    6. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
    7. Sorensen, Peter Birch, 2004. "International tax coordination: regionalism versus globalism," Journal of Public Economics, Elsevier, vol. 88(6), pages 1187-1214, June.
    8. Kächelein, Holger, 2004. "Capital Tax Competition and Partial Cooperation : Welfare Enhancing or not?," BERG Working Paper Series 51, Bamberg University, Bamberg Economic Research Group.

    More about this item

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • F15 - International Economics - - Trade - - - Economic Integration

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