IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

On the desirability of tax coordination when countries compete in taxes and infrastructure

  • Yutao Han

    (CREA, Université du Luxembourg)

  • Patrice Pieretti

    (CREA, Université du Luxembourg)

  • Benteng Zou

    ()

    (CREA, Université du Luxembourg)

In our paper, we demonstrate that when countries compete in taxes and infrastructure, coordination through a uniform tax rate or a minimum rate does not necessarily create the welfare effects observed under pure tax competition. The divergence is even worse when the competing jurisdictions differ in institutional quality. If tax revenues are used to gauge the desirability of coordination, our model demonstrates that imposing a uniform tax rate is Pareto-inferior to the non-cooperative equilibrium when countries compete in taxes and infrastructure. This result is completely reversed under pure tax competition if the countries are sufficiently similar in size. If a minimum tax rate is set within the range of those resulting from the non-cooperative equilibrium, the low tax country will never be better off. Finally, the paper demonstrates that the potential social welfare gains from tax harmonization crucially depend on the degree of heterogeneity among the competing countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-476.pdf
File Function: First version, 2013
Download Restriction: no

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 476.

as
in new window

Length: 30 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:bie:wpaper:476
Contact details of provider: Postal: Postfach 10 01 31, 33501 Bielefeld
Phone: +49(0)521-106-4907
Web page: http://www.imw.uni-bielefeld.de/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Robin Boadway & Jean-François Tremblay, 2010. "Reassessment of the Tiebout Model," NBER Chapters, in: Fiscal Federalism, pages 1063-1078 National Bureau of Economic Research, Inc.
  2. Streeten, Paul, 1993. "The special problems of small countries," World Development, Elsevier, vol. 21(2), pages 197-202, February.
  3. 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.
  4. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September.
  5. Pieretti, Patrice & Zanaj, Skerdilajda, 2011. "On tax competition, public goods provision and jurisdictions' size," Journal of International Economics, Elsevier, vol. 84(1), pages 124-130, May.
  6. KEEN, Michael & MARCHAND, Maurice, 1996. "Fiscal Competition and the Pattern of Public Spending," CORE Discussion Papers 1996001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Hauptmeier, Sebastian & Mittermaier, Ferdinand & Rincke, Johannes, 2012. "Fiscal competition over taxes and public inputs," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 407-419.
  8. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
  9. Ogura, Laudo M., 2006. "A note on tax competition, attachment to home, and underprovision of public goods," Journal of Urban Economics, Elsevier, vol. 59(2), pages 252-258, March.
  10. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-37, October.
  11. Paola Conconi & Paola Riezman & Carlo Perroni, 2008. "Is Partial Tax Harmonization Desirable?," ULB Institutional Repository 2013/98550, ULB -- Universite Libre de Bruxelles.
  12. 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.
  13. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  14. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November.
  15. La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert, 2001. "Investor Protection and Corporate Governance," Working Paper Series rwp01-017, Harvard University, John F. Kennedy School of Government.
  16. HINDRIKS, Jean & PERALTA, Susana & WEBER, Shlomo, 2006. "Competing in taxes and investment under fiscal equalization," CORE Discussion Papers 2006109, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Konrad, Kai A., 2009. "Non-binding minimum taxes may foster tax competition," Munich Reprints in Economics 22085, University of Munich, Department of Economics.
  18. Konrad, Kai A., 2008. "Non-binding minimum taxes may foster tax competition
    [Mindeststeuern können Steuerwettbewerb verstärken]
    ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2008-10, Social Science Research Center Berlin (WZB).
  19. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  20. Zissimos, Ben & Wooders, Myrna, 2008. "Public good differentiation and the intensity of tax competition," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1105-1121, June.
  21. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
  22. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers W94/07, Institute for Fiscal Studies.
  23. repec:cup:cbooks:9780521233293 is not listed on IDEAS
  24. Wildasin, David E. & Wilson, John Douglas, 1996. "Imperfect mobility and local government behaviour in an overlapping-generations model," Journal of Public Economics, Elsevier, vol. 60(2), pages 177-198, May.
  25. Keen, Michael, 1987. "Welfare effects of commodity tax harmonisation," Journal of Public Economics, Elsevier, vol. 33(1), pages 107-114, June.
  26. Wilson, John Douglas, 2005. "Welfare-improving competition for mobile capital," Journal of Urban Economics, Elsevier, vol. 57(1), pages 1-18, January.
  27. Trandel, Gregory A., 1994. "Interstate commodity tax differentials and the distribution of residents," Journal of Public Economics, Elsevier, vol. 53(3), pages 435-457, March.
  28. 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.
  29. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers 4, John Deutsch Institute for the Study of Economic Policy.
  30. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November.
  31. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bie:wpaper:476. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Frederik Herzberg)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.