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Corporate Tax Games with International Externalities from Public Infrastructure

Author

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  • Gerda Dewit

    (Economics, National University of Ireland, Maynooth)

  • Kate Hynes

    (Economics, National University of Ireland, Maynooth)

  • Dermot Leahy

    (Economics, National University of Ireland, Maynooth)

Abstract

We construct a model of corporate tax competition in which governments also use public infrastructural investment to attract foreign direct investment, thus enhancing their tax bases. In doing so, we allow for inter-regional infrastructural externalities. Depending on the externality, governments are shown to strategically over- or under-invest in infrastructure. We examine how tax cooperation influences investment in infrastructure and find that welfare may be lower under tax cooperation than under tax competition; this is, in fact, the case when infrastructure is sufficiently effctive in raising the tax base and generates a sufficiently large negative interregional externality

Suggested Citation

  • Gerda Dewit & Kate Hynes & Dermot Leahy, 2014. "Corporate Tax Games with International Externalities from Public Infrastructure," Economics Department Working Paper Series n250-14.pdf, Department of Economics, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n250-14.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax competition; Tax cooperation; Public infrastructure investment; Externalities.;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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