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Is Partial Tax Harmonization Desirable?

Author

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  • Conconi, Paola

    (Université Libre de Bruxelles (ECARES), University of Warwick (CSGR) and CEPR)

  • Perroni, Carlo

    (University of Warwick and CESifo)

  • Riezman, Raymond

    (University of Iowa and CESifo)

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

  • Conconi, Paola & Perroni, Carlo & Riezman, Raymond, 2007. "Is Partial Tax Harmonization Desirable?," The Warwick Economics Research Paper Series (TWERPS) 795, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:795
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax Competition ; Commitment ; Partial Coordination;
    All these keywords.

    JEL classification:

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

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