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The gains from preferential tax regimes reconsidered

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  • Carl Gaigné
  • Ian Wooton

Abstract

The EU policy against harmful tax competition aims at eliminating tax policies targeted at attracting the internationally mobile tax base. We construct an imperfectly competitive model of costly trade between two countries. In setting their corporate taxes, governments non-cooperatively decide whether to discriminate between internationally mobile and immobile firms. We find the Nash equilibrium tax regimes. When trade costs are high countries impose a uniform tax on all firms while nations will discriminate between mobile and immobile firms when costs are low. At some trade costs, fiscal competition results in tax discrimination despite uniform taxation being socially preferable.

Suggested Citation

  • Carl Gaigné & Ian Wooton, 2010. "The gains from preferential tax regimes reconsidered," Working Papers SMART - LERECO 10-06, INRA UMR SMART-LERECO.
  • Handle: RePEc:rae:wpaper:rae:wpaper:201006
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Gaigné, Carl & Riou, Stéphane & Thisse, Jacques-François, 2012. "Are compact cities environmentally friendly?," Journal of Urban Economics, Elsevier, vol. 72(2), pages 123-136.
    2. Jota Ishikawa & Toshihiro Okubo, 2017. "Greenhouse-Gas Emission Controls and Firm Locations in North–South Trade," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 637-660, August.
    3. Clemens Fuest & Samina Sultan, 2017. "How Will Brexit Affect Tax Competition and Tax Harmonization? The Role of Discriminatory Taxation," CESifo Working Paper Series 6807, CESifo Group Munich.
    4. Gaigné, Carl & Riou, Stéphane & Thisse, Jacques-François, 2012. "Are compact cities environmentally friendly?," Journal of Urban Economics, Elsevier, vol. 72(2), pages 123-136.
    5. Persyn, Damiaan, 2013. "Union wage demands with footloose firms and agglomeration forces," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 142-150.
    6. Hernandez-Murillo, Ruben, 2014. "Interjurisdictional Competition and Location Decisions of Firms," Working Papers 2014-36, Federal Reserve Bank of St. Louis.
    7. Gaigné, Carl & Riou, Stéphane & Thisse, Jacques-François, 2012. "Are compact cities environmentally friendly?," Journal of Urban Economics, Elsevier, vol. 72(2), pages 123-136.
    8. Carl Gaigné & Stéphane Riou & Jacques-François Thisse, 2012. "Are Compact Cities Environmentally (and Socially) Desirable ?," Cahiers de recherche CREATE 2012-4, CREATE.

    More about this item

    Keywords

    preferential tax regimes; tax competition; imperfect competition; trade costs;

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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