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Tax Competition with Heterogeneous Capital Mobility

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  • Steeve Mongrain

    (Simon Fraser University)

  • John D. Wilson

    (Michigan State University)

Abstract

An ongoing debate in the tax competition literature is whether a system of countries or regions should restrict the preferential tax treatment of different types of firms or capital. We further investigate this issue by departing from the bulk of the literature in three ways: (1) rather than maximize only tax revenue, governments also put positive weight on the income generated by resident-owned firms; (2) under preferential taxation, firms are distinguished by their country of origin; and (3) the competing regions are allowed to differ in size. Under the assumption of uniformly-distributed moving costs, identical regions always prefer the non-preferential regime. But when a small and large region compete, the small region prefers the preferential regime in some cases. We also identify non-uniform distributions of moving costs where the preferential regime is preferred by identical competing regions. This finding is related to differences in tax-base elasticities.

Suggested Citation

  • Steeve Mongrain & John D. Wilson, 2017. "Tax Competition with Heterogeneous Capital Mobility," Discussion Papers dp17-13, Department of Economics, Simon Fraser University.
  • Handle: RePEc:sfu:sfudps:dp17-13
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    References listed on IDEAS

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    Cited by:

    1. Alfons J. Weichenrieder & Fangying Xu, 2019. "Are tax havens good? Implications of the crackdown on secrecy," Journal of Economics, Springer, vol. 127(2), pages 147-160, July.
    2. Kaushal Kishore, 2016. "Dynamic Tax Competition, Home Bias and the Gain from Non-preferential Agreements," Working Papers 201676, University of Pretoria, Department of Economics.
    3. Steeve Mongrain & David Oh & Tanguy van Ypersele, 2020. "Tax Competition in Presence of Profit Shifting," Discussion Papers dp20-04, Department of Economics, Simon Fraser University.
    4. Bellofatto, Antonio Andrés & Besfamille, Martín, 2021. "Tax decentralization notwithstanding regional disparities," Journal of Urban Economics, Elsevier, vol. 123(C).
    5. David R. Agrawal & William H. Hoyt & John D. Wilson, 2020. "Local Policy Choice: Theory and Empirics," CESifo Working Paper Series 8647, CESifo.
    6. George Marian Ștefan & Vlad Nerău & Daniela Livia Traşcă & Daniela Nicoleta Sahlian & Liviu Matac, 2019. "“Social Trilemma”: Empirical Evidence from Central and Eastern Europe," Sustainability, MDPI, Open Access Journal, vol. 11(17), pages 1-15, August.
    7. Yutao Han, & Patrice Pieretti & Giuseppe Pulina, 2020. "The impact of tax and infrastructure competition on the protability of local firms," BCL working papers 149, Central Bank of Luxembourg.
    8. Haupt, Alexander & Krieger, Tim, 2020. "The role of relocation mobility in tax and subsidy competition," Journal of Urban Economics, Elsevier, vol. 116(C).

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    More about this item

    Keywords

    Tax Competition; Heterogeneity; Preferential Tax Treatment.;
    All these keywords.

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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