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On tax competition, public goods provision and jurisdictions' size

  • Patrice Pieretti
  • Skerdilajda Zanaj

    ()

    (CREA, University of Luxembourg)

In this paper, we analyse competition among jurisdictions to attract firms through low taxes on capital and/or high level of public goods, which enhance firms' productivity. We assume that the competing jurisdictions are different in (population) size and that the mobility of capital is costly. We nd that for moderate mobility costs, small economies can attract foreign capital if they supply higher levels of public goods than larger jurisdictions, without being tax havens. If mobility costs are high, we recover the classical result that small jurisdictions are attractive to foreign capital if they engage in tax dumping. Finally, we show that there exists a subset of mobility costs for which the differentiation in public goods across jurisdictions is not able to relax tax competition.

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File URL: http://wwwen.uni.lu/content/download/24106/292608/file/2009-14_On%20tax%20competition,%20public%20goods%20provision%20and%20jurisdictions%27%20size.pdf
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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 09-14.

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Date of creation: 2009
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Handle: RePEc:luc:wpaper:09-14
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  1. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
  2. Justman, Moshe & Thisse, Jacques-François & van Ypersele, Tanguy, 2001. "Taking the Bite Out of Fiscal Competition," CEPR Discussion Papers 3109, C.E.P.R. Discussion Papers.
  3. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
  4. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
  5. Haufler, Andreas & Wooton, Ian, 1997. "Tax Competition for Foreign Direct Investment," CEPR Discussion Papers 1583, C.E.P.R. Discussion Papers.
  6. Streeten, Paul, 1993. "The special problems of small countries," World Development, Elsevier, vol. 21(2), pages 197-202, February.
  7. Nicolas Marceau & Steeve Mongrain & John D. Wilson, 2007. "Why Do Most Countries Set High Tax Rates on Capital?," Cahiers de recherche 0711, CIRPEE.
  8. Jean Hindriks & Gareth D. Myles, 2006. "Intermediate Public Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262083442, June.
  9. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  10. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  11. Jack Mintz & Henry Tulkens, 1984. "Commodity Tax Competition Between Member States of a Federation," Working Papers 558, Queen's University, Department of Economics.
  12. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," Munich Reprints in Economics 20270, University of Munich, Department of Economics.
  13. Nico A. Hansen & Anke S. Kessler, 2001. "The Political Geography of Tax H(e)avens and Tax Hells," American Economic Review, American Economic Association, vol. 91(4), pages 1103-1115, September.
  14. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
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