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Tax competition and tax coordination : when countries differ in size

Author

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  • Kanbur, Ravi
  • Keen, Michael

Abstract

The purpose of this paper is to develop a model that isrich enough to capture some of the central features of the interaction between national tax systems in an integrated world but simple enough to yield sharp insights into some of the central questions which that interaction raises. The underlying theme is the comparison between tax competition and tax cooperation. The model itself focuses on the role of the relative sizes of the economies involved. The paper consists of seven sections. Section 1 serves as an introduction. It states the paper's objectives, cites the findings of other recent studies on the subject, and lists some of the central questions raised by the economic integration of multiple countries in regard to taxation. Section 2 describes the model created by the authors. Sections 3 and 4 characterize and investigate the outcome under unrestricted tax competition, modelled as a non-cooperative (Nash) equilibrium in tax-setting. Partial measures of tax coordination are then examined in Section 5. Section 6 characterizes the jointly optimal tax structure, which suggests that the optimal joint response to freer cross-border trade may be to do absolutely nothing. Section 7 concludes by addressing some of the questions mentioned in the introduction, based on the results of the application of the model.

Suggested Citation

  • Kanbur, Ravi & Keen, Michael, 1991. "Tax competition and tax coordination : when countries differ in size," Policy Research Working Paper Series 738, The World Bank.
  • Handle: RePEc:wbk:wbrwps:738
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    Citations

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    Cited by:

    1. Enrique G. Mendoza & Linda L. Tesar, 2003. "Winners and Losers of Tax Competition in the European Union," NBER Working Papers 10051, National Bureau of Economic Research, Inc.
    2. Signe Krogstrup, 2002. "What do Theories of Tax Competition Predict for Capital Taxes in EU Countries? A Review of the Tax Competition Literature," IHEID Working Papers 05-2002, Economics Section, The Graduate Institute of International Studies.
    3. Wolfgang Eggert & Bernd Genser, 2001. "Is Tax Harmonization Useful?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 511-527, August.
    4. Michel Cavagnac & Isabelle Péchoux, 2010. "Domestic Effects of Environmental Policies with Transboundary Pollution," Recherches économiques de Louvain, De Boeck Université, vol. 76(1), pages 113-134.
    5. Enrique G. Mendoza & Linda L. Tesar, 2003. "A Quantitative Analysis of Tax Competition v. Tax Coordination under Perfect Capital Mobility," NBER Working Papers 9746, National Bureau of Economic Research, Inc.
    6. Nathalie Chusseau & Joël Hellier, 2012. "Globalisation and Inequality: Where do we stand?," Journal of Income Distribution, Journal of Income Distribution, vol. 21(3-4), pages 7-34, November.
    7. Ben Lockwood & Giuseppe Migali, 2009. "Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries," Economic Journal, Royal Economic Society, vol. 119(536), pages 406-429, March.
    8. Moriconi, Simone & Sato, Yasuhiro, 2009. "International commodity taxation in the presence of unemployment," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 939-949, August.
    9. Helmuth Cremer & Firouz Gahvari, 1997. "Tax Competition and Tax Evasion," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 24, pages 89-104.
    10. Jørgen Aasness & Odd Erik Nygård, 2009. "Revenue functions and Dupuit curves for indirect taxes with cross-border shopping," Discussion Papers 573, Statistics Norway, Research Department.
    11. Nathalie Chusseau & Joel Hellier, 2014. "Globalization and social segmentation," Working Papers 339, ECINEQ, Society for the Study of Economic Inequality.
    12. Parviainen, Seija, 1998. "Redistribution and Risk Sharing in EMU," Discussion Papers 159, VATT Institute for Economic Research.
    13. IREGUI, Ana María & Ligia Melo & Jorge Ramos, 2005. "El impuesto predial en Colombia: factores explicativos del recaudo," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, June.
    14. Vijay Jog & Jianmin Tang, 2001. "Tax Reforms, Debt Shifting and Tax Revenues: Multinational Corporations in Canada," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(1), pages 5-25, January.
    15. Michael Keen & Jon Strand, 2007. "Indirect Taxes on International Aviation," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 1-41, March.
    16. Hansen, Mads J. N. G., 1999. "Cross-border Shopping and the Environment," ERSA conference papers ersa99pa206, European Regional Science Association.
    17. Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125, CPB Netherlands Bureau for Economic Policy Analysis.
    18. Matthias Wrede, 2000. "Shared Tax Sources and Public Expenditures," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(2), pages 163-175, March.
    19. Kimberley Scharf, 1999. "Scale Economies in Cross-Border Shopping and Commodity Taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(1), pages 89-99, February.

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