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Who benefits from partial tax coordination?

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  • Yutao Han

    (CREA, Université du Luxembourg)

Abstract

In this paper, we investigate whether partial tax coordination is beneficial to countries within and outside a tax union, in which countries are supposed to compete in taxes and infrastructure. Our results demonstrate that, a subgroup of countries agreeing on a common tax rate, can harm both member and nonmember states. This is in contrast to the classical findings that partial tax harmonization is Pareto improving. When a minimum tax rate is imposed within a tax union, we demonstrate that it does not necessarily improve the welfare of the member countries. Moreover, both the high tax and low tax countries can be worse off. This is at odds with a classical result that a high tax country benefits from the imposition of a lower tax bound.

Suggested Citation

  • Yutao Han, 2013. "Who benefits from partial tax coordination?," DEM Discussion Paper Series 13-24, Department of Economics at the University of Luxembourg.
  • Handle: RePEc:luc:wpaper:13-24
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax competition; infrastructure competition; partial tax coordination; social welfare;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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