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Are your firm’s taxes set in Warsaw ? Spatial tax competition in Europe

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  • Karen, CRABBE

    (KULeuven and LICOS)

  • Hylke, VANDENBUSSCHE

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

Abstract

Tax competition within the EU is fiercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes tax responses of EU-15 countries to corporate tax changes in the EU-10 new member states as a function of their proximity to these new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, allowing firms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries geographically closer to the new member states respond stronger to corporate tax changes in these new member states. We use a theoretical and a spatial regression framework to test the hypothesis that distance to a low tax region intensifies countries’ tax reaction functions.

Suggested Citation

  • Karen, CRABBE & Hylke, VANDENBUSSCHE, 2008. "Are your firm’s taxes set in Warsaw ? Spatial tax competition in Europe," Discussion Papers (ECON - Département des Sciences Economiques) 2008050, Université catholique de Louvain, Département des Sciences Economiques.
  • Handle: RePEc:ctl:louvec:2008050
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    Citations

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    Cited by:

    1. Ronald B. Davies & Johannes Voget, 2008. "Tax competition in an expanding European Union," Working Papers 200904, School of Economics, University College Dublin.
    2. Masaaki Suzuki, 2013. "Corporate Effective Tax Rates in Asian Countries," KIER Working Papers 875, Kyoto University, Institute of Economic Research.
    3. Heimberger, Philipp, 2021. "Corporate tax competition: A meta-analysis," European Journal of Political Economy, Elsevier, vol. 69(C).
    4. Elisabeth Bustos Contell & Salvador Climent-Serrano & Gregorio Labatut-Serer, 2018. "The evolution of the tax burden for EU companies," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(4), December.
    5. Peter Egger & Horst Raff, 2015. "Tax rate and tax base competition for foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 777-810, October.
    6. Åsa Hansson & Susan Porter & Susan Williams, 2015. "The importance of the political process on corporate tax policy," Constitutional Political Economy, Springer, vol. 26(3), pages 281-306, September.
    7. Michael P. Devereux & Simon Loretz, 2013. "What Do We Know About Corporate Tax Competition?," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(3), pages 745-774, September.
    8. Michela Redoano, 2007. "Fiscal Interactions Among European Countries. Does the EU Matter?," CESifo Working Paper Series 1952, CESifo.
    9. Elisabeth Bustos-Contell & Salvador Climent-Serrano & Gregorio Labatut-Serer, 2017. "Offshoring in the European Union: a Study of the Evolution of the Tax Burden," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 11(2), June.
    10. Azémar, Céline & Desbordes, Rodolphe & Wooton, Ian, 2020. "Is international tax competition only about taxes? A market-based perspective," Journal of Comparative Economics, Elsevier, vol. 48(4), pages 891-912.
    11. Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries," Post-Print halshs-00617043, HAL.
    12. Markus Leibrecht & Claudia Hochgatterer, 2012. "Tax Competition As A Cause Of Falling Corporate Income Tax Rates: A Survey Of Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 616-648, September.
    13. Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries," Post-Print halshs-00617043, HAL.
    14. Redoano, Michela, 2014. "Tax competition among European countries. Does the EU matter?," European Journal of Political Economy, Elsevier, vol. 34(C), pages 353-371.
    15. Suzuki, Masaaki, 2014. "Corporate effective tax rates in Asian countries," Japan and the World Economy, Elsevier, vol. 29(C), pages 1-17.
    16. Jorge Núñez Ferrer & Jacques Le Cacheux & Giacomo Benedetto & Mathieu Saunier & Fabien Candau & Claude Emonnot & Florence Lachet-Touya & Jorgen Mortensen & Aymeric Potteau & Igor Taranic, 2016. "Study on the potential and limitations of reforming the financing of the EU budget [Perspectives et limites pour réformer le financement du budget de l’UE]," Working Papers hal-01848029, HAL.

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    More about this item

    Keywords

    H25; H77; H39;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other

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