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Globalization, Asymmetric Tax Competition, and Fiscal Equalization

Author

Listed:
  • Carl Gaigne

    (Unité d'économie et sociologie rurales de rennes - INRA - Institut National de la Recherche Agronomique)

  • Stéphane Riou

    (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - UJM - Université Jean Monnet - Saint-Étienne)

Abstract

Trade integration and the increasing mobility of firms have raised the need for international coordination in corporate tax. In this paper, we study the ability of fiscal equalization to avoid the misallocation of capital across asymmetric countries arising from tax competition. Such a reform respects the principle according to which the tax decision is entirely left up to the nation and links nations engaged in strategic tax policy by transfers. We use a model of trade and location where firms produce under imperfect competition. Our analysis suggests that falling trade costs increase the distortion created by tax competition in the international allocation of production. However, we show that fiscal equalization based on differences in tax revenues or tax base can implement a more efficient tax wedge and spatial allocation of the tax base

Suggested Citation

  • Carl Gaigne & Stéphane Riou, 2007. "Globalization, Asymmetric Tax Competition, and Fiscal Equalization," Post-Print ujm-00176385, HAL.
    • Handle: RePEc:hal:journl:ujm-00176385
    DOI: 10.1111/j.1467-9779.2007.00337.x
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    Cited by:

    1. repec:lic:licosd:22809 is not listed on IDEAS
    2. Hikaru Ogawa & Atsushi Yamagishi, 2016. "Ad Valorem Capital Tax Competition," CIRJE F-Series CIRJE-F-1030, CIRJE, Faculty of Economics, University of Tokyo.
    3. Nelly Exbrayat & Carl Gaigné & Stéphane Riou, 2010. "How labor market rigidities shape business taxation in a global economy?," Post-Print halshs-00492693, HAL.
    4. Gaigné, Carl & Wooton, Ian, 2011. "The gains from preferential tax regimes reconsidered," Regional Science and Urban Economics, Elsevier, vol. 41(1), pages 59-66, January.
    5. Nelly Exbrayat, 2017. "Does Trade Liberalisation Trigger Tax Competition? Theory and Evidence from OECD Countries," The World Economy, Wiley Blackwell, vol. 40(1), pages 88-115, January.
    6. Nelly Exbrayat & Carl Gaigné & Stéphane Riou, 2012. "The effects of labour unions on international capital tax competition," Canadian Journal of Economics, Canadian Economics Association, vol. 45(4), pages 1480-1503, November.
    7. Till Gross, 2021. "Dynamic Optimal Fiscal Policy in a Transfer Union," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 194-238, October.
    8. Matthias Wrede, 2014. "Agglomeration, tax competition, and fiscal equalization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(6), pages 1012-1027, December.
    9. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1123-1196, Elsevier.
    10. Nelly Exbrayat & Benny Geys, 2014. "Trade integration and corporate income tax differentials," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(2), pages 298-323, April.
    11. Nelly Exbrayat, 2016. "Does trade liberalization trigger tax competition? Theory and evidence from OECD countries," Working Papers 1620, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    12. Yuya Kikuchi & Toshiki Tamai, 2019. "Tax competition, unemployment, and intergovernmental transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 899-918, August.
    13. Nelly Exbrayat, 2016. "Does trade liberalization trigger tax competition? Theory and evidence from OECD countries," Working Papers halshs-01328769, HAL.
    14. Liu, Feng & Hu, Yangmu, 2025. "Can fiscal transfers achieve both equity and efficiency: Evidence from Chinese counties," International Review of Economics & Finance, Elsevier, vol. 103(C).
    15. Pasquale Commendatore & Ingrid Kubin, 2016. "Source versus residence: A comparison from a new economic geography perspective," Papers in Regional Science, Wiley Blackwell, vol. 95(2), pages 201-222, June.
    16. Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries," Post-Print halshs-00617043, HAL.
    17. Nelly Exbrayat & Thierry Madiès & Stéphane Riou, 2010. "International tax competition: do public good spillovers matter?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 479-500, October.
    18. Fabien Candau, 2008. "Entrepreneurs' Location Choice And Public Policies: A Survey Of The New Economic Geography," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 909-952, December.
    19. Wenming Wang & Keisuke Kawachi & Hikaru Ogawa, 2014. "Fiscal Transfer in a Repeated-Interaction Model of Tax Competition," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(4), pages 556-566, December.
    20. Caterina Liesegang & Marco Runkel, 2018. "Tax competition and fiscal equalization under corporate income taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 311-324, April.
    21. Exbrayat, Nelly & Geys, Benny, 2012. "Trade integration and business tax differentials: Evidence from OECD countries," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-110, WZB Berlin Social Science Center.
    22. Nelly Exbrayat, 2008. "The Impact of Trade Integration and Agglomeration Economies on Tax Interactions : Evidence from OECD Countries," Post-Print hal-00270067, HAL.

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