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Who benefits from tax competition in the European Union?

  • Leon Bettendorf

    ()

  • Joeri Gorter
  • Albert van der Horst

    ()

Statutory tax rates have declined in the European Union in the recent decades. An applied general equilibrium model on corporate taxation sheds light on the economic and welfare implications of tax rate reforms. Domestic distortions proof highly relevant as even unilateral reductions of the corporate income tax rate might reduce welfare if the labour tax rate has to be increased. Profit shifting induces countries to underbid each others tax rates, but this effect is sizable only if two countries are closely linked. The harmful external effects of CIT rate reductions are limited, which reduces the need for European coordination of CIT rates.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Document with number 125.

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Date of creation: Aug 2006
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Handle: RePEc:cpb:docmnt:125
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