IDEAS home Printed from https://ideas.repec.org/p/cpb/docmnt/125.html
   My bibliography  Save this paper

Who benefits from tax competition in the European Union?

Author

Listed:
  • Leon Bettendorf

    ()

  • Joeri Gorter

    ()

  • Albert van der Horst

    ()

Abstract

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.

Suggested Citation

  • Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:docmnt:125
    as

    Download full text from publisher

    File URL: http://www.cpb.nl/sites/default/files/publicaties/download/who-benefits-tax-competition-european-union.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Huizinga, Harry & Nicodeme, Gaetan, 2006. "Foreign ownership and corporate income taxation: An empirical evaluation," European Economic Review, Elsevier, pages 1223-1244.
    2. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, pages 1210-1235.
    3. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association, pages 203-230.
    4. Joeri Gorter & Ruud de Mooij, 2001. "Capital income taxation in Europe; trends and trade-offs," CPB Special Publication 30, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Keen, Michael & Lahiri, Sajal, 1998. "The comparison between destination and origin principles under imperfect competition," Journal of International Economics, Elsevier, vol. 45(2), pages 323-350, August.
    6. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, pages 306-325.
    7. Mendoza, Enrique G. & Tesar, Linda L., 2005. "Why hasn't tax competition triggered a race to the bottom? Some quantitative lessons from the EU," Journal of Monetary Economics, Elsevier, pages 163-204.
    8. Thiess Büttner, 1999. "Determinants of Tax Rates in Local Capital Income Taxation: A Theoretical Model and Evidence from Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, pages 363-363.
    9. Sylvester C.W. Eijffinger & Wolf Wagner, "undated". "Taxation if Capital is not Perfectly Mobile: Tax Competition versus Tax Exportation," EPRU Working Paper Series 02-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    10. Torfinn Harding & Jørn Rattsø, 2005. "The Barrier Model of Productivity Growth: South Africa," Working Paper Series 4805, Department of Economics, Norwegian University of Science and Technology.
    11. Carlsen, Fredrik & Langset, Bjorg & Rattso, Jorn, 2005. "The relationship between firm mobility and tax level: Empirical evidence of fiscal competition between local governments," Journal of Urban Economics, Elsevier, pages 273-288.
    12. Kind, Hans Jarle & Knarvik, Karen Helene Midelfart & Schjelderup, Guttorm, 2000. "Competing for capital in a 'lumpy' world," Journal of Public Economics, Elsevier, pages 253-274.
    13. Zodrow, George R, 2003. "Tax Competition and Tax Coordination in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 651-671.
    14. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, pages 149-165.
    15. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, pages 297-323.
    16. Anke S. Kessler & Christoph Lülfesmann & Gordon M. Myers, 2002. "Redistribution, Fiscal Competition, and the Politics of Economic Integration," Review of Economic Studies, Oxford University Press, pages 899-923.
    17. Matsumoto, Mutsumi, 2004. "The mix of public inputs under tax competition," Journal of Urban Economics, Elsevier, pages 389-396.
    18. Huizinga, Harry & Nicodeme, Gaetan, 2006. "Foreign ownership and corporate income taxation: An empirical evaluation," European Economic Review, Elsevier, pages 1223-1244.
    19. Richard Chisik & Ronald B. Davies, 2004. "Gradualism In Tax Treaties With Irreversible Foreign Direct Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 113-139, February.
    20. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Journal of Public Economics, Elsevier, pages 441-458.
    21. Michael Devereux, 2004. "Debating Proposed Reforms of the Taxation of Corporate Income in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 71-89.
    22. Enrique G. Mendoza & Linda L. Tesar, 1995. "Supply-side economics in a global economy," International Finance Discussion Papers 507, Board of Governors of the Federal Reserve System (U.S.).
    23. Michiel Evers & Ruud de Mooij & Daniel van Vuuren, 2005. "What explains the variation in estimates of labour supply elasticities?," CPB Discussion Paper 51, CPB Netherlands Bureau for Economic Policy Analysis.
    24. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 673-693.
    25. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, pages 297-323.
    26. Mendoza, Enrique G & Tesar, Linda L, 1998. "The International Ramifications of Tax Reforms: Supply-Side Economics in a Global Economy," American Economic Review, American Economic Association, pages 226-245.
    27. Copenhagen Economics, 2004. "Economic effects of tax cooperation in an enlarged European Union," Taxation Studies 0012, Directorate General Taxation and Customs Union, European Commission.
    28. Gottschalk, Silke & Peters, Wolfgang, 2003. "Redistributive Taxation in the Era of Globalization," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 453-468.
    29. Parry, Ian W. H., 2003. "How large are the welfare costs of tax competition?," Journal of Urban Economics, Elsevier, pages 39-60.
    30. Rachel Griffith & Alexander Klemm, 2004. "What has been the tax competition experience of the past 20 years?," IFS Working Papers W04/05, Institute for Fiscal Studies.
    31. European Commission, 2006. "Taxation trends in the European Union: 2006 edition," Taxation trends 2006, Directorate General Taxation and Customs Union, European Commission.
    32. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 673-693.
    33. Richard Baldwin; Paul Krugman, 2001. "Agglomeration, Integration and Tax Harmonization," IHEID Working Papers 01-2001, Economics Section, The Graduate Institute of International Studies.
    34. Martin Finkenzeller & Christoph Spengel, 2004. "Measuring the Effective Levels of Company Taxation in the New Member States: A Quantitative Analysis," Taxation Papers 7, Directorate General Taxation and Customs Union, European Commission, revised Dec 2004.
    35. Sorensen, Peter Birch, 2004. "International tax coordination: regionalism versus globalism," Journal of Public Economics, Elsevier, pages 1187-1214.
    36. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, pages 113-134.
    37. Sinn, Hans-Werner, 1998. "European Integration and the Future of the Welfare State," CEPR Discussion Papers 1871, C.E.P.R. Discussion Papers.
    38. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, pages 1-23.
    39. European Commission, 2007. "Taxation trends in the European Union: 2007 edition," Taxation trends 2007, Directorate General Taxation and Customs Union, European Commission.
    40. Jane Gravelle & Kent Smetters, 2001. "Who Bears the Burden of the Corporate Tax in The Open Economy?," NBER Working Papers 8280, National Bureau of Economic Research, Inc.
    41. Noiset, Luc, 2003. "Is it tax competition or tax exporting?," Journal of Urban Economics, Elsevier, pages 639-647.
    42. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, pages 1210-1235.
    43. Lee, Young & Gordon, Roger H., 2005. "Tax structure and economic growth," Journal of Public Economics, Elsevier, pages 1027-1043.
    44. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
    45. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Munich Reprints in Economics 19402, University of Munich, Department of Economics.
    46. Huizinga, Harry & Laeven, Luc, 2007. "International Profit Shifting within European Multinationals," CEPR Discussion Papers 6048, C.E.P.R. Discussion Papers.
    47. Thiess Büttner, 1999. "Determinants of Tax Rates in Local Capital Income Taxation: A Theoretical Model and Evidence from Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, pages 363-363.
    48. Leon Bettendorf & Albert van der Horst, 2006. "Documentation of CORTAX," CPB Memorandum 161, CPB Netherlands Bureau for Economic Policy Analysis.
    49. Davies, Ronald B., 2005. "State tax competition for foreign direct investment: a winnable war?," Journal of International Economics, Elsevier, pages 498-512.
    50. Parry, Ian, 2001. "How Large are the Welfare Costs of Tax Competition?," Discussion Papers dp-01-28, Resources For the Future.
    51. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, pages 1-23.
    52. European Commission, 2009. "Taxation trends in the European Union: 2009 edition," Taxation trends 2009, Directorate General Taxation and Customs Union, European Commission.
    53. Ruud Mooij, 2005. "Will Corporate Income Taxation Survive?," De Economist, Springer, pages 277-301.
    54. Kanbur, Ravi & Keen, Michael, 1991. "Tax competition and tax coordination : when countries differ in size," Policy Research Working Paper Series 738, The World Bank.
    55. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, pages 356-370.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Albert van der Horst & Leon Bettendorf & Hugo Rojas-Romagosa, 2007. "Will Corporate Tax Consolidation improve Efficiency in the EU ?," Tinbergen Institute Discussion Papers 07-076/2, Tinbergen Institute.
    2. Albert van der Horst & Leon Bettendorf & Hugo Rojas-Romagosa, 2007. "Will corporate tax consolidation improve efficiency in the EU?," CPB Document 141, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Ruud A. de Mooij & Hendrik Vrijburg, 2012. "Tax Rates as Strategic Substitutes," Tinbergen Institute Discussion Papers 12-104/VI, Tinbergen Institute.
    4. 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.
    5. Barrett, Alan & Barry, Frank & Van der Horst, Albert & Kearney, Ide & Lane, Philip R. & Nolan, Brian & O'Brien, Martin & Walsh, John R., 2007. "Budget Perspectives 2008," Research Series, Economic and Social Research Institute (ESRI), number BMI199 edited by Callan, Tim.
    6. Leon Bettendorf & Albert van der Horst, 2006. "Documentation of CORTAX," CPB Memorandum 161, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Leon Bettendorf & Albert Van Der Horst & Ruud A. De Mooij & Hendrik Vrijburg, 2010. "Corporate Tax Consolidation and Enhanced Cooperation in the European Union," Fiscal Studies, Institute for Fiscal Studies, pages 453-479.
    8. Leon Bettendorf & Albert van der Horst & Ruud A. de Mooij, 2009. "Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis," The World Economy, Wiley Blackwell, vol. 32(9), pages 1319-1347, September.
    9. Ruud Mooij & Michael Devereux, 2011. "An applied analysis of ACE and CBIT reforms in the EU," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 93-120.
    10. 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.
    11. Ruud de Mooij & Michael P. Devereux, 2008. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 0023, Directorate General Taxation and Customs Union, European Commission.
    12. International Monetary Fund, 2008. "Kingdom of the Netherlands; Netherlands: Selected Issues," IMF Staff Country Reports 08/172, International Monetary Fund.
    13. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 28, Directorate General Taxation and Customs Union, European Commission.
    14. Hendrik Vrijburg & Ruud A. Mooij, 2016. "Tax rates as strategic substitutes," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 2-24.
    15. Ruud de Mooij & Michael P. Devereux, 2008. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 0023, Directorate General Taxation and Customs Union, European Commission.
    16. Hendrik Vrijburg & Ruud Mooij, 2016. "Tax rates as strategic substitutes," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 2-24.

    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpb:docmnt:125. 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: (). General contact details of provider: http://edirc.repec.org/data/cpbgvnl.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.