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Is Partial Tax Harmonization Desirable?

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  • Paola Conconi
  • Paola Riezman
  • Carlo Perroni

Abstract

We consider a setting in which capital taxation is characterized by two distortions working in opposite directions. On one hand, governments engage in tax competition and are tempted to lower capital tax rates. On the other hand, they are unable to commit to future policies and, once capital has been installed, have incentives to increase taxes. In this setting, there exists a tax that optimally trades off the two distortions. We compare three possible tax harmonization scenarios: no tax harmonization (all countries set taxes unilaterally), global tax harmonization (all countries coordinate their capital taxes), and partial tax harmonization (only a subset of all countries coordinate capital taxes). We show that, if capital is sufficiently mobile, partial tax harmonization benefits all countries compared to both global and no harmonization.

Suggested Citation

  • Paola Conconi & Paola Riezman & Carlo Perroni, 2008. "Is Partial Tax Harmonization Desirable?," ULB Institutional Repository 2013/98550, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/98550 Note: SCOPUS: ar.j
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Itaya, Jun-ichi & Okamura, Makoto & Yamaguchi, Chikara, 2014. "Partial tax coordination in a repeated game setting," European Journal of Political Economy, Elsevier, vol. 34(C), pages 263-278.
    2. repec:bla:ecinqu:v:55:y:2017:i:2:p:682-694 is not listed on IDEAS
    3. Haufler, Andreas & Lülfesmann, Christoph, 2015. "Reforming an asymmetric union: On the virtues of dual tier capital taxation," Journal of Public Economics, Elsevier, vol. 125(C), pages 116-127.
    4. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 119-152, February.
    5. Leon Bettendorf & Albert Van Der Horst & Ruud A. De Mooij & Hendrik Vrijburg, 2010. "Corporate Tax Consolidation and Enhanced Cooperation in the European Union," Fiscal Studies, Institute for Fiscal Studies, vol. 31(4), pages 453-479, December.
    6. repec:eee:reveco:v:51:y:2017:i:c:p:431-443 is not listed on IDEAS
    7. Yutao Han & Patrice Pieretti & Benteng Zou, 2017. "On The Desirability Of Tax Coordination When Countries Compete In Taxes And Infrastructure," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 682-694, April.
    8. Naghavi, Alireza, 2010. "Trade sanctions and green trade liberalization," Environment and Development Economics, Cambridge University Press, vol. 15(04), pages 379-394, August.
    9. 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.
    10. Yutao Han, 2013. "Who benefits from partial tax coordination?," CREA Discussion Paper Series 13-24, Center for Research in Economic Analysis, University of Luxembourg.
    11. Zou, Yuxiang & Chen, Tai-Liang, 2016. "International joint venture and welfare-improving tariff-tax reforms," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 27-35.
    12. Rossitza B. Wooster & Joshua W. Lehner, 2010. "Reexamining The Border Tax Effect: A Case Study Of Washington State," Contemporary Economic Policy, Western Economic Association International, vol. 28(4), pages 511-523, October.
    13. Humphery-Jenner, Mark, 2012. "The impact of the EU takeover directive on takeover performance and empire building," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 254-272.
    14. Sanz Córdoba, Patrícia & Theilen, Bernd, 1965-, 2016. "Partial tax harmonization through infrastructure coordination," Working Papers 2072/261535, Universitat Rovira i Virgili, Department of Economics.

    More about this item

    Keywords

    Commitment; Partial coordination; Tax competition;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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