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EU Regional Policy and Tax Competition

  • Johannes Becker

    ()

    (Oxford University Centre for Business Taxation)

  • Clemens Fuest

    ()

    (Oxford University Centre for Business Taxation)

The European Union provides coordination and financing of trans-European transport infrastructures, i.e. roads and railways, which link the EU Member States and reduce the cost of transport and mobility. This raises the question of whether EU involvement in this area is justified by inefficiencies of national infrastructure policies. Moreover, an often expressed concern is that policies enhancing mobility may boost tax competition. We analyse these questions using a model where countries compete for the location of profitable firms. We show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition. In contrast, with regard to union-periphery infrastructure, the union has an interest in a coordinated reduction of investment expenditures. Here, the effects on tax competition are ambiguous. Our results provide a rationale for EU-level regional policy that supports the development of intra-union infrastructure.

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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0902.

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Date of creation: 2009
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Handle: RePEc:btx:wpaper:0902
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