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Tax Competition in an Expanding European Union

  • Ronald B. Davies

    ()

    (University College Dublin)

  • Johannes Voget

    ()

    (Oxford University Centre for Business Taxation)

This paper empirically examines whether expansion of the EU has increased international tax competition. To do so, we use a simple model of tax competition to determine how a given country weights the taxes of others when choosing its own tax. This indicates that the market potential of a country (which includes both domestic consumption and exports) is the appropriate weight. This is an improvement on the ad-hoc and often endogenous weighting schemes used elsewhere. Unlike those studies, we find robust evidence for tax competition. In particular, our estimates suggest that EU membership affects responses with EU members responding more to the tax rates of other members. This lends credence to the above-noted concerns.

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File URL: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/Series_08/WP0830.pdf
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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0830.

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Date of creation: 2008
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Handle: RePEc:btx:wpaper:0830
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  1. Jim Markusen & Caroline Ekholm, Rikard Forslid, 2005. "Export-Platform Foreign Direct Investment," The Institute for International Integration Studies Discussion Paper Series iiisdp050, IIIS.
  2. Devereux, Michael P. & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
  3. Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 682-698, 09.
  4. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2002. "Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment," NBER Working Papers 8929, National Bureau of Economic Research, Inc.
  5. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
  6. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July.
  7. Axel Dreher, 2003. "The Influence of Globalization on Taxes and Social Policy – an Empirical Analysis for OECD Countries," Public Economics 0310002, EconWPA, revised 27 Feb 2004.
  8. Andreas Haufler & Alexander Klemm & Guttorm Schjelderup, 2006. "Globalisation and the Mix of Wage and Profit Taxes," CESifo Working Paper Series 1678, CESifo Group Munich.
  9. 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.
  10. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 800-838, September.
  11. James R. Markusen & Keith E. Maskus, 1999. "Discriminating Among Alternative Theories of the Multinational Enterprise," NBER Working Papers 7164, National Bureau of Economic Research, Inc.
  12. Michael Devereux & Rachel Griffith, 1996. "Taxes and the location of production: evidence from a panel of US multinationals," IFS Working Papers W96/14, Institute for Fiscal Studies.
  13. Aisbett, Emma & Karp, Larry & McAusland, Carol, 2006. "Regulatory Takings and Environmental Regulation in NAFTA's Chapter 11," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt1qh5j6dv, Department of Agricultural & Resource Economics, UC Berkeley.
  14. A. Klemm & S. Van Parys, 2010. "Empirical Evidence on the Effects of Tax Incentives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/673, Ghent University, Faculty of Economics and Business Administration.
  15. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
  16. Ronald B. Davies, 2008. "Hunting High and Low for Vertical FDI," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 250-267, 05.
  17. Simon Loretz, 2008. "Corporate taxation in the OECD in a wider context," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 639-660, winter.
  18. Rosanne Altshuler & Timothy J. Goodspeed, 2002. "Follow the Leader? Evidence on European and U.S. Tax Competition," Departmental Working Papers 200226, Rutgers University, Department of Economics.
  19. Bruce A. Blonigen & Ronald B. Davies & Helen T. Naughton & Glen R. Waddell, 2005. "Spacey Parents: Spatial Autoregressive Patterns in Inbound FDI," NBER Working Papers 11466, National Bureau of Economic Research, Inc.
  20. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
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