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Strategic fiscal interaction among OECD countries

  • Pantelis Kammas

This paper investigates whether OECD countries compete with each other for mobile factors by using various fiscal (tax-spending) policy instruments. We use a panel dataset of 20 OECD countries over the 1982-2000 period. There is evidence that international capital inflows (FDI) are affected by fiscal policy at home and abroad. Also, there is evidence of fiscal competition for mobile factors which takes place via capital tax rates. More precisely, we find that domestic capital tax rates react: (i) positively to changes in capital tax rates and (ii) negatively to changes in public investment spending in neighbouring countries. In contrast, evidence of such a strategic interdependence over public investment spending decisions is not established.

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File URL: http://www.eeri.eu/documents/wp/EERI_RP_2009_11.pdf
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Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2009_11.

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Length: 31 pages
Date of creation: 08 Nov 2009
Date of revision:
Handle: RePEc:eei:rpaper:eeri_rp_2009_11
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