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Economic integration, tax erosion, and decentralisation: an empirical analysis

Author

Listed:
  • Francesca Gastaldi

    () (University of Roma Sapienza)

  • Paolo Liberati

    () (University of Roma Tre)

  • Antonio Sciala'

    () (University of Roma Tre)

Abstract

This paper addresses the issues of whether and how the degree of economic integration may affect central government tax revenues and the intensity of decentralisation. To this purpose, we empirically test the direct impact of economic integration on central tax revenues using the concept of implicit tax rates (ITRs) updated to take into account mobile and immobile capital taxation. On this basis we derive a country-specific measure of tax erosion that is used as a determinant of the decentralisation of the public sector in an Arellano-Bond environment. We find that: i) an increase of economic integration generates a downward pressure on ITRs on mobile capital, which is growing at increasing rates as far as economic integration increases; ii) the process of tax erosion gives rise to a corresponding process of increasing public sector decentralisation.

Suggested Citation

  • Francesca Gastaldi & Paolo Liberati & Antonio Sciala', 2011. "Economic integration, tax erosion, and decentralisation: an empirical analysis," "Marco Fanno" Working Papers 0127, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0127
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    Keywords

    Economic integration; Fiscal federalism; Tax competition.;

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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