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The standard neo-classical view on tax competition. A diagrammatic survey and some deductions for small open economies


  • Ricardo Pinheiro Alves

    () (Departamento de Gestão e Economia, Universidade da Beira Interior)


This paper presents a diagrammatic survey of the standard neo-classical theory of tax competition for foreign direct investment and tax coordination between countries. It has four aims: to give a detailed view of the main theoretical and empirical results; to extract from it some general deductions for small and less developed open economies; to discuss different angles to improve the existing literature; and to put these in the context of fiscal policy in the European Union. It argues that eventual benefits brought by corporate tax harmonisation in the EU are not sufficient to compensate the risk of doing harm to small and relatively poor economies. Further research on equity issues is therefore needed before proceeding to harmonisation.

Suggested Citation

  • Ricardo Pinheiro Alves, 2005. "The standard neo-classical view on tax competition. A diagrammatic survey and some deductions for small open economies," Working Papers de Gestão, Economia e Marketing (Management, Economics and Marketing Working Papers) e01/2005, Universidade da Beira Interior, Departamento de Gestão e Economia (Portugal).
  • Handle: RePEc:csh:wpecon:e01/2005

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    Foreign Direct Investment; Tax competition; Tax coordination; Small countries;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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