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Globalization, Asymmetric Tax Competition, and Fiscal Equalization

Author

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  • Carl Gaigne

    (INRA-ESR - Unité d'économie et de sociologie rurales - 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] - CNRS - Centre National de la Recherche Scientifique)

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
    Note: View the original document on HAL open archive server: https://hal-ujm.archives-ouvertes.fr/ujm-00176385
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Damiaan Persyn, 2009. "Union wage demands with footloose firms," Working Papers VIVES Research Centre for Regional Economics 3, KU Leuven, Faculty of Economics and Business, VIVES Research Centre for Regional Economics.
    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. repec:bla:worlde:v:40:y:2017:i:1:p:88-115 is not listed on IDEAS
    6. 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.
    7. 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.
    8. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, Elsevier.
    9. 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.
    10. 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.
    11. repec:kap:itaxpf:v:26:y:2019:i:4:d:10.1007_s10797-019-09533-0 is not listed on IDEAS
    12. Nelly Exbrayat, 2016. "Does trade liberalization trigger tax competition? Theory and evidence from OECD countries," Working Papers halshs-01328769, HAL.
    13. 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.
    14. Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries," Post-Print halshs-00617043, HAL.
    15. 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.
    16. repec:kap:itaxpf:v:25:y:2018:i:2:d:10.1007_s10797-017-9451-6 is not listed on IDEAS
    17. 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.
    18. 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.
    19. 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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