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Tax Competition in an Expanding European Union

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  • Ronald B. Davies and Johannes Voget

Abstract

This paper empirically examines whether expansion of the EU has increased international tax competition. To do so, we use a simple model of tax competition to determine how a given country weights the taxes of others when choosing its own tax. This indicates that the market potential of a country (which includes both domestic consumption and exports) is the appropriate weight. This is an improvement on the adhoc and often endogenous weighting schemes used elsewhere. Unlike those studies, we find robust evidence for tax competition. In particular, our estimates suggest that EU membership affects responses with EU members responding more to the tax rates of other members. This lends credence to the above-noted concerns.

Suggested Citation

  • Ronald B. Davies and Johannes Voget, 2009. "Tax Competition in an Expanding European Union," The Institute for International Integration Studies Discussion Paper Series iiisdp276, IIIS.
  • Handle: RePEc:iis:dispap:iiisdp276
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • F1 - International Economics - - Trade
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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