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Tax Competition and Politics: Double-Edged Incentives Revisited

Author

Listed:
  • Ben Lockwood

    (Department of Economics, University of Warwick and CSGR)

  • Miltiadis Makris

    (Department of Economics, University of Exeter and CMPO, University of Bristol)

Abstract

We re-examine, from a political economy perspective, the standard view that higher capital mobility results in lower capital taxes - a view, in fact, that is not confirmed by the available empirical evidence. We show that when a small economy is opened to capital mobility, the change of incidence of a tax on capital - from capital owners to owners of the immobile factor - may interact in such a way with political decision-making so as to cause a rise in the equilibrium tax. This can happen whether or not the fixed factor (labour) can be taxed.

Suggested Citation

  • Ben Lockwood & Miltiadis Makris, 2003. "Tax Competition and Politics: Double-Edged Incentives Revisited," Discussion Papers 0304, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:0304
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    File URL: https://exetereconomics.github.io/RePEc/dpapers/DP0304.pdf
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    More about this item

    Keywords

    Tax Competition;

    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

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