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Are Capital Taxes Racing to the Bottom in the European Union?

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  • Signe Krogstrup

    () (IUHEI)

Abstract

This paper tests the central predictions of the theoretical tax competition literature for capital tax rates for a panel of European Union countries, notably a race to the bottom in capital tax rates. One measure of capital mobility is found to exhibit a downward pressure on capital taxes while another measure shows a positive correlation. Empirical tests imply that the latter positive relationship may be caused by neglecting to control for the agglomeration forces linked with capital mobility. If this is indeed the case, the results lend strong empirical support to the hypothesis of a downward pressure on capital tax rates in absolute terms and relative to labor taxes, but add to this that agglomeration forces mitigate, and might even outweigh the race to the bottom effect of increasing capital mobility.

Suggested Citation

  • Signe Krogstrup, 2003. "Are Capital Taxes Racing to the Bottom in the European Union?," IHEID Working Papers 01-2003, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heiwp01-2003
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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP01-2003.pdf
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    References listed on IDEAS

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    1. repec:dgr:rugccs:200006 is not listed on IDEAS
    2. repec:dgr:rugsom:99e05 is not listed on IDEAS
    3. Volkerink, Bjørn & Haan, Jakob de, 1999. "Political and institutional determinants of the tax mix : an empirical investigation for OECD countries," Research Report 99E05, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    4. Volkerink, Bjørn & Haan, Jacob de, 2000. "Fragmented government effects on fiscal policy: new evidence," CCSO Working Papers 200006, University of Groningen, CCSO Centre for Economic Research.
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    Citations

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    Cited by:

    1. Jean Hindriks & Susana Peralta & Shlomo Weber, 2014. "Local Taxation of Global Corporation: A Simple Solution," Annals of Economics and Statistics, GENES, issue 113-114, pages 37-65.
    2. repec:kap:itaxpf:v:24:y:2017:i:6:d:10.1007_s10797-016-9429-9 is not listed on IDEAS
    3. Oeffner, Marc, 2005. "Die Duale Einkommensteuer des Sachverständigenrates in der Diskussion," W.E.P. - Würzburg Economic Papers 59, University of Würzburg, Chair for Monetary Policy and International Economics.
    4. Dreher, Axel, 2006. "The influence of globalization on taxes and social policy: An empirical analysis for OECD countries," European Journal of Political Economy, Elsevier, vol. 22(1), pages 179-201, March.
    5. Hansson, Åsa & Olofsdotter, Karin, 2005. "Integration and Tax Competition: An Empirical Study of OECD Countries," Working Papers 2005:4, Lund University, Department of Economics, revised 09 Feb 2005.
    6. Paolo Liberati & Antonio Sciala, 2011. "How economic integration affects the vertical structure of the public sector," Economics of Governance, Springer, vol. 12(4), pages 385-402, December.
    7. Krogstrup, Signe, 2002. "Public debt asymmetries: the effect on taxes and spending in the European Union," Working Paper Series 0162, European Central Bank.
    8. Antonio SCIALA' & Paolo LIBERATI, "undated". "The Impact of Economic Openness on the Vertical Structure of the Public Sector," EcoMod2008 23800129, EcoMod.
    9. Jean, HINDRIKS & Susana , PERALTA & Sholmo , WEBER, 2005. "Fiscal competition, revenue sharing, and policy-induced agglomeration," Discussion Papers (ECON - Département des Sciences Economiques) 2005062, Université catholique de Louvain, Département des Sciences Economiques.
    10. Marco CATENARO & Jean-Pierre VIDAL, 2006. "Implicit tax co-ordination under repeated policy interactions," Discussion Papers (REL - Recherches Economiques de Louvain) 2006011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    11. Libman, Alexander, 2005. "Взаимодействие Государственных И Частных Структур В Интеграционных Группировах: Теоретические Подходы И Опыт Снг
      [Interaction of Public and Private Actors in Regional Integration Groups - Theoretic
      ," MPRA Paper 17044, University Library of Munich, Germany.

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    Keywords

    Tax competition; Capital taxation; European financial integration; Capital mobility;

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