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Enhanced Coorporation in an asymmetric model of Tax Competition

  • Hendrik Vrijburg

    ()

    (Erasmus University Rotterdam)

  • Ruud A. de Mooij

    ()

    (Erasmus University Rotterdam, CPB, Tinbergen Institute, Oxford University Centre for Business Taxation, CESifo)

This paper analyzes enhanced cooperation agreements in corporate taxation in a three country tax competition model where countries differ in size. We characterize equilibrium tax rates and the optimal tax responses due to the formation of an enhanced cooperation agreement. Conditions for strategic complementarity or strategic substitutability of tax rates are crucial for the welfare effects of enhanced cooperation. Simulations show that enhanced cooperation is unlikely to be feasible for small countries. When enhanced cooperation is feasible, it may hamper global harmonization. Only when countries are of similar size is global harmonization a feasible outcome.

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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1002.

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Date of creation: 2010
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Handle: RePEc:btx:wpaper:1002
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  1. Konrad, Kai A. & Schjelderup, Guttorm, 1999. "Fortress Building in Global Tax Competition," Journal of Urban Economics, Elsevier, vol. 46(1), pages 156-167, July.
  2. Beaudry, Paul & Cahuc, Pierre & Kempf, Hubert, 2000. " Is It Harmful to Allow Partial Cooperation?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 1-21, March.
  3. Leon Bettendorf & Albert van der Horst & Ruud de Mooij & Hendrik Vrijburg, 2009. "Corporate tax consolidation and enhanced cooperation in the European Union," CPB Discussion Paper 132, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Peter Birch Sørensen, 2000. "The case for international tax co-ordination reconsidered," Economic Policy, CEPR;CES;MSH, vol. 15(31), pages 429-472, October.
  5. Massimo Bordignon & Sandro Brusco, 2003. "On Enhanced Cooperation," CESifo Working Paper Series 996, CESifo Group Munich.
  6. Burbidge, John B. & James A. DePater & Gordon M. Meyers & Abhijit Sengupta, 1997. "A Coalition-Formation Approach to Equilibrium Federations and Trading Blocs," American Economic Review, American Economic Association, vol. 87(5), pages 940-56, December.
  7. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  8. Jens Brøchner & Jesper Jensen & Patrik Svensson & Peter Birch Sørensen, 2006. "The Dilemmas of Tax Coordination in the Enlarged European Union," CESifo Working Paper Series 1859, CESifo Group Munich.
  9. Paola Manzini & Marco Mariotti, 1998. "A Tragedy Of The Clubs: Excess Entry in Exclusive Coalitions," Game Theory and Information 9808001, EconWPA.
  10. Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1533-1554, August.
  11. Ben Lockwood, 2004. "Competition in Unit vs. Ad Valorem Taxes," International Tax and Public Finance, Springer, vol. 11(6), pages 763-772, November.
  12. Peter Sørensen, 2004. "Company Tax Reform in the European Union," International Tax and Public Finance, Springer, vol. 11(1), pages 91-115, January.
  13. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2003. "International Unions," Harvard Institute of Economic Research Working Papers 2001, Harvard - Institute of Economic Research.
  14. Bayindir-Upmann, Thorsten & Ziad, Abderrahmanne, 2005. "Existence of equilibria in a basic tax-competition model," Regional Science and Urban Economics, Elsevier, vol. 35(1), pages 1-22, January.
  15. Jens Brøchner & Jesper Jensen & Patrik Svensson & Peter Birch Sørensen, 2006. "The Dilemmas of Tax Coordination in the Enlarged European Union," Working Papers 2006-11, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
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